To understand the key tax benefits on a home loan, we are bifurcating the repayment techniques into four major elements-tax benefits on principal repaid, tax benefits on interest paid, deduction on pre-construction interest, and section 80EE income tax benefits. The next section will let you know the concept in detail.
Tax Benefits on Principal Repaid
Under section 80C of the Income Tax Act, the maximum deduction allowed for the repayment of the principal amount of a home loan is Rs. 1.5 lakh. Deduction under section 80C also includes investments done in the PPF Account, Equity Oriented Mutual funds, Tax Saving Fixed Deposits, National Savings Certificate, etc. subject to a maximum of Rs. 1.5 lakhs.
Besides this, there are stamp duty and registration charges that one can claim under the aforementioned section. However, the claim can only take place in the year in which the payment was made.
Nevertheless, there’s a condition under which this repayment of the principal amount of the housing loan is allowed. The deduction is only possible after the house gets entirely completed and there is a completion certificate for the same. The principal amount paid on any under-construction structure/property is not going to be a part of this section.
Tax Benefits on Interest Paid
Under section 24 of the Income Tax Act, one can avail of the deduction on a Home Loan for payment of Interest tax benefits. The self-occupied property allows the deduction with a maximum limit of Rs. 2 lakh if it takes completed within 5 years from the end of the Financial Year, otherwise, the maximum limit is Rs. 30,000.
Interest on housing loans paid for the let-out property is fully allowed in the relevant assessment year in which it is claimed.
From Assessment year 2018-19, the loss from house property head that will be allowed to be set off from other heads of income will be restricted to Rs 2,00,000 in a particular assessment year, and the rest amount shall be carried forward for set-off in subsequent years.
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Tax Deduction on Pre-construction Interest
You can also claim interest on a housing loan paid before the completion of the construction of the property. It is termed pre-construction interest. It is allowed in 5 equal instalments beginning from the financial year in which the construction is completed. The limit of 2 lacs will also apply for pre-construction interest in the case of self-occupied property. However, it is fully allowed in case we let our property.
Section 80EE Income Tax Benefit
Section 80EE proposes an additional deduction of Rs 50000 in respect of interest on housing loans to first-time house owners who own a house of Rs 50 lakh or less and have taken a home loan amount of less than or equal to Rs 35 lakh. The loan should be sanctioned between April 1, 2016, and March 31, 2017, to claim a deduction under this section. This deduction shall be in addition to the interest allowed under section 24(b) of the Income Tax Act, 1961.
Deductions Claimed by Individuals Under Section 80EEA
As mentioned under the newly inserted section 80EEA of the Income Tax Act, the government has extended the limit of deduction up to Rs. 1,50,000 applicable to the interest paid by any individual on the loan against residential property.
As per the policies, the deduction is available for individual residents only and for the property having a stamp value of less than Rs. 45 Lakhs.
Also, the loan needs to be sanctioned between 1 April 2019 to 31 March 2022, and the individual should not own any other residential property at the date of sanctioning the loan. Lastly, the person should not be eligible for claiming any deduction U/S 80EE.
Joint Home Loan Deduction
In case the home loan is taken jointly, then the loan borrowers are eligible to claim a deduction of up to 2 lakh each for the home loan interest and principal repayment u/s up to INR 1.5 lakh each in the tax return individually. They all must be co-owners of the property and further it helps in the larger tax claim benefits if in the family itself.
| Deductions | Section | Maximum Deduction (INR) | Conditions |
|---|---|---|---|
| Principal | 80c | 1.5 Lakh | No sale of property within 5 years |
| Interest | 24b | 2 Lakh | The loan has to be taken for construction and has to be completed within 5 years |
| Interest | 80EE | 50,000 Thousand | The loan amount must be under 35 lakhs , and the property value under 50 lakhs |
| Stamp Duty | 80C | 1.5 Lakh | Availed only in the year of expense |
| Interest | 80EEA | 1.5 Lakh | The stamp value of the property is under INR 45 lakh. Taxpayers are not eligible to claim a deduction under section 80EE |
However, in the new tax regime, deduction is not allowed under sections 24(b), 80C, 80EE and 80EEA.
Sir,
I have taken a Home loan 13L for purchasing a Flat in Feb 2014. Can I avail the deductions Under section 80EE in addition to 2L.
As loan has not been sanctioned between April 2016 to March 2017, you can’t avail deduction u/s 80EE.
My Mom is a housewife who has started earning income from this FY of approx Rs 60000/- per annum (Rs 5000/-per month) from private school tuition. She has registered with Income Tax department this year and will be filing the return. She has also earned LTCG this FY by selling off a joint property held along with my dad. My query is, Will the LTCG received be added along with her other income and taxed as per Tax slab with exemptions up to 2.5 lacs being in the lowest bracket of income OR whether the LTCG received taxed separately @20% (after cost indexation); without taking into consideration of her income tax bracket. Regards
You will get the slab benefit in case of long-term capital gain. The balance LTCG (after adjusting it with slab amount) will be taxed at 20%.
1. We (self and spouse) sold off our joint property for Rs 29 lacs in Sep 2017. The same was purchased by us in the year 2004-05 for Rs 8.3 Lacs.
2. We jointly purchased a new property worth Rs 57 lacs in Mar 2018. This property was under construction since 2014 for which we were paying EMI since then and finally took possession in Mar 2018. The last 7-8 EMIs and expenses on registration, stamp paper etc were paid out of the amount we got from the previous sale mentioned in para 1 above.
3. Can I take the benefit of exemption from paying Long Term Capital Gain (LTCG) for the sold property since I invested the amount in purchasing a new property? The new property sale deed was made in Mar 2018 (within one year of selling the old property) on taking possession.
An early reply, please.
As you have purchased a new house property within 1 year, so you can claim exemption from LTCG arose on a sale of the old property.
Dear Sir/Madam
Let me thank you for this highly impressible blog site to clear doubts regarding tax saving.
I purchased a house site (plot) for Rs. 22,00,000 in FY 2016-2017 without taking any loan. I constructed the house on this plot in FY 2017-2018 and the house was completed in the month of Dec 2017. I borrowed home loan Rs 25,00,000 from SBI for the construction submitting an estimate of construction cost Rs 30,70,500 from an engineer. The loan was sanctioned in January 2017. Since I am a public servant hence I intimated to the employer and also filed immovable property return declaring the transaction as follows:
Purchase of house site for Rs 22,00,000 transaction in the year 2016 – 2017.
Construction of house at cost Rs 32,00,000 (Rs 25,00,000 from loan + Rs 7,00,000 from own saving) transaction in the year 2017 – 2018.
I want to know, How the value of residential house property is calculated for the purpose of income tax benefits?
I am first-time house buyer and did not have any property on the date of sanction of loan. The loan amount is less than 35,00,000 and the loan was sanctioned between 1-April 2016 – 31-March 2017.
Am I eligible to claim the deduction of Rs 50,000 for tax benefit under section 80EE?
As you have taken the loan for construction of house property and as per section 80EE, the deduction is allowed on loan, taken for purchase of property so you cannot avail deduction.
I availed housing loan in Aug 2016, completed construction in July 2017. The paid interest of Rs-70000/- for the year 2016-17 and interest of Rs-3,90,000/- for the year 2017-18. I have let it out on rent and received the rent of Rs-66000 for the year 2017-18.
I have two questions for filing ITR-1 for the AY 2018-19.
1. How to avail pre-construction interest benefit for the amount Rs-70000/- I paid for the year 2016-17.
2. Can I get full benefit on the interest paid for the year 2017-18 (Rs 3,90,000)? I tried filling the amount in ITR-1, after entering all the details under income details but income chargeable under house property shows only (-2,00,000/-).
1) Pre-construction interest will be allowed in 5 equal installments beginning from the year in which construction has been completed.
2) As per the latest amendments, maximum interest can be set off under house property will be Rs. 200000/-, balance deduction will be carry forward for next years. Also you can avail excess deduction of Rs. 50000 u/s 80EE.