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 have taken the loan for one house before 11 years. till last year I was claiming a deduction of principal & Interest. Now this year I have purchased the new house. I think now can claim principal of only one house and interest of both the house. so, can I claim the principal of second house and interest of second house in self-occupied property and interest of first house under deemed let out property?
You can show any one of the property as self-occupied and treat the interest component accordingly. Principal repayment can be claimed for all the houses up to a maximum of Rs. 150000/-.
I have bought a Flat for investment purpose in 2011 and took a loan for it through LICHFL in the same year as it was Construction linked plan. I got the possession of the flat in 2017 after many delays. I have been paying an Interest of appx 150,000 per year as per the interest certificate provided by the Housing Finance Company. This is my second home as I stay in the other one.
Can I claim the interest benefit for this property? If yes would it be only for interest paid in the current year only or I could take benefit of interest of last 3/5 years
Yes, you can take the benefit of interest paid during the FY in its respective ITR. This property would be treated as “deemed let out”. The pre-acquisition interest can be claimed in 5 equal instalments in 5 years beginning from the year in which the property was acquired.
I HAVE PAID RS 70000 AS INTEREST ON HOUSING LOAN IN FY 17-18. CAN I SHOW IT AT INTEREST PAYABLE ON BORROWED CAPITAL? IF NO THEN WHERE CAN I SHOW IT? PLEASE GUIDE.
Yes, you can claim the deduction of Rs. 70000/- under “Income from House property”
Hello,
I have the home loan with ICICI HFC sanctioned on 26/10/2016, and I have claimed an interest in sec 80EE for FY 16-17 & FY 17-18, but in July 2018 I have switched my loan to HDFC for the same property & loan. Shall I get the benefit of sec 80EE for FY 18-19? and which documents to be produced?
The deduction u/s 80EE for FY 18-19 is only available for the original loan sanctioned in FY 2016-17 and not for the new loan. Whether you have just switched the bank or is it a new loan?
Yes, I have switched the bank. the loan which I took from HDFC is for same property & to close my previous loan from ICICI.
Since the essence of the loan is same you can claim deduction of the repayment of loan
I HAVE TAKEN A HOME LOAN OF 4500000 FROM SBI AND I AM FIRST TIME HOME BUYER. HOW CAN I TAKE THE REBATE IN ITR FOR PRINCIPLE AMOUNT AS WELL AS INTEREST.
Claim house loan interest amount under income from house property (max 200000/- will be allowed in case of self-occupied property). Principle repayment amount is to be claimed as deduction u/s 80C.
As you say “Principle repayment amount is to be claimed as deduction u/s 80C.” however there is no option in the website to claim.
You will get a column to enter deductions u/s 80C in your ITR form. Please check.