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.
I purchased an apartment in December 2012. Construction is still in progress. I pay EMI and the total EMI paid for FY17-18 is 170199. Can I claim this amount of 170199 under any deduction head while filing ITR for the AY18-19?
Deduction w.r.t. interest is allowed only when the construction is completed. You can claim pre-construction period interest in 5 equal installments beginning from the F.Y. in which the construction is completed. However principal amount repayment can be claimed as deduction u/s 80C
Please collect interest paid certificate from bank, interest will claim in section 24 and principal will claim in 80c
I partially (25% or one living unit) constructed my plot in 2014-15 with my own savings and got an occupation certificate in 2015. I did not rent it out and did not live there. To construct the remaining portion of the house, I took a home loan in August 2017 for Rs 11 lakh from the bank and I am paying EMI since Sept 2017 for Rs 11000/-. Please tell tax implications.
Thanks.
Repayment of the principal amount is to be claimed as the deduction under section 80C. Interest amount can be claimed as deduction depending on whether the property is shown as self-occupied or let out. In the first case, actual interest or Rs. 200000/- whichever is lower is allowed. In the latter case, you can claim the actual amount of interest fully.
Sir, thanks for the reply. What should I write under income from house property in ITR form? Thanks.
I have purchased a flat during FY2014-15 against a loan of 26,00,000/-. I have never claimed against the 80EE section. Am I eligible for the same? If yes, can I claim for the previous years also?
For claiming deduction u/s 80EE, the loan must be sanctioned in FY 2016-17. So you are not eligible for this deduction.
I am paid Rs. 58167/- as interest on the Home loan. But as per return form in 80EE I am only getting 50000/- reduction. How can I claim balance 8167/-
Balance interest can be claimed in income from house property by showing it as a deduction.
Respected madam,
My wife is a govt. Teacher, She has purchased her first house for own use @ 1000000/- on bank loan as on August 2014. The entire loan will be paid within 20 yrs. The loan and interest instalment comes to rs. 10200 /- p.m.
How much interest and instalment amount can be exempted totally per year from her annual income.
Pls. Reply and oblige
Thanking you!
Sunil
Interest will be allowed upto a maximum of Rs. 200000/- (since it is a self occupied property). Principal repayment is allowed upto max of Rs. 150000 (80C deduction)