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.
Dear Sir/madam
I have purchased a new house and had a house loan of amount Rs 26 lakh (LIC-HFL), which was sanctioned on 26 March 2016. In Addition to this
I have taken another loan Rs 6 lakh from the same company, which was sanctioned on August 2017.
Q1 Can I get the benefit of Rs 50000/- under Section 80EE, However, In 80EE it is indicated that the benefit of 80EE can be taken by those who have been sanctioned Loan between 01.04.2016 to 31.03.2017 ??
Q2 Whether I can get the tax benefit from both the loan or not?
Ans 1- No you cannot claim deduction u/s 80EE.
Ans 2- You can claim interest deduction under “income from house property” for the loan amount.
I am paying 2,27,000 interest for my home loan. I have claimed 200000 under 24(b). Can I claim remaining amount under 80EE? My home loan approved on 22 Mar 2017.
Yes you can claim deduction u/s 80EE for the remaining amount of 27000/- if all other conditions of 80EE are also fulfilled.
I have purchased a house and taken the loan of amount Rs 26 Lakhs (LIC-HFL), which was sanctioned on 26 March 2016 and another loan of Rs 6 lakhs (LIC-HFL, sanctioned in August 2017) also taken for the furnishing of my same house. Can I get the benefit of Rs 50000/- from both the loan. But in section 80 EE, it has been stated that this benefit is only applicable to Loan sanctioned between 01.04.2016 to 31.03.2017. But in my case, both loans are not in between
No, you cannot take benefit of deduction u/s 80EE.
Hi,
I do the job in Pune and stay in a rented flat here with my husband.
I have a house property in my hometown on my name and show the rent received in “income from house property”. Home loan is over for this property in Feb 2017.
In March 2016, I and my husband have jointly bought another property in Pune for which we got possession in March 2018. We are repaying the home loan on this property. (This flat is rented out in April 2018).
Please let me know how can I take maximum tax benefit? I am confused because I read that if one owns 2 houses, one is to be shown as self-occupied and the other as rented out.
In my case, I own two houses but stay in the rented house. So I also want to claim HRA.
Regards
You cannot take H.R.A. exemption benefit if in that city you have your own house too. You need to show one house as self-occupied and other will deemed to be let out.
Very good article.
You have rightly mentioned that from AY2018-19, loss from house property allowed to be set off from other income is limited to 2,00,000rs.
Does this limitation apply for individual owning multiple flats?
Ex: I own (100%) a building with 12 flats. I have paid 6,00,000rs more interest than 70% of rent received. I have another flat on which I have paid 4,00,000rs more interest than 705 of rent received. I cant claim more than the Rs.2,00,000 loss from both of the above property?
Yes, the 200000/- set off limit is for losses under “income from house property” head which covers losses of all the house properties.
I have purchased a house property in April 2015, but the actual possession and the consideration were settled in 2013 itself, should I consider the date of purchases as 2015 or 2013 itself?
Since both possession and payment has been made in 2013, the purchase will be deemed to be in the year 2013.