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 got a home loan starting August 2016 for 35 lakhs. However, construction of my flat got completed in January 2018 and I took the possession in July 2018. We are currently looking for the tenant to rent out this flat. As the construction got completed in 2017-18, I am now looking to get tax benefits on interest paid on both pre-construction and post-construction. As I have EMIs of around 30,000/-, I have already reached the 2,00,000/- limit just by post-construction. How can I get benefit from pre-construction period?
As you have constructed your house so you will not be eligible for the excess deduction of Rs. 50000 u/s 80EE, hence you will only be allowed interest deduction up to Rs. 200000, and remaining will be carry forwarded to next years.
Thanks for the prompt response! Though I am still in doubt.
Let’s say I had constant EMI of 30,000/- per month (25,000/- as the interest component). It started in August 2016.
Interest paid in F.Y. 2016-17 = 25000*8 = 2 lakhs
Interest paid in F.Y. 2017-18 = 25000*12 = 3 lakhs
As of now, I have not taken any tax benefit so far. While filing ITR of 17-18, I am showing my running home loan (as construction got completed in 17-18). Hence, I am filing 3 lakhs as home loan interest + 40,000/- (pre-construction).
However, the maximum limit is 2 lakhs for this entire amount of 3.4 lakhs.
So, I want to understand how can I take the tax benefit for the interest paid till March 2017.
I and my wife together purchased a flat and we both are the co-borrowers of the house loan. Now the entire EMI gets deducted from my account and my salary. Actually, I am first time declaring my investment proofs in my Office portal to avoid TDS Deduction. I got the loan of 25 lakhs so how I can declare this amount in the following section
528
Principal Loan (Housing Loan) Repayment
As per Sec 80C–
Deduction u/s 80C (Principal repayment of the loan) can be claimed by you and your wife in proportion to the share in the borrowing. Each co-borrower can claim up to Rs. 1.5 lacs deduction.
Hello,
Do we get tax exemption on the amount we pay as Property Tax every year, to the municipality? If yes, how is the calculation done and under which section of IT it falls? Please provide your valuable info.
The municipal taxes borne and actually paid during the financial year are allowed as the deduction from “annual rental value” of the house property.
yes we get the deduction of municipal tax paid on cash basis (not accrual) , i.e., amount you paid in this year as property tax , you will be eligible to claim a deduction of that amount .
calculation : house property rax is deductable from GAV (Gross annual value)computed as per section 23
gav = step 1 : municipal rent and fair rent wichever is higher is selected
step 2 : compare the rent so selected with standard rent ( as per rent control act ) andselectthe lower of two
step 3 : compare the rent selected in step 2 with the actual rent and select the higher of both
resulting value is your GAV
Now you can deduct the municipal tax from GAV
reffer section 23 for more detailes .
Hi,
I have taken a home loan sanction in December 2015 but took the disbursement in July 2016. Am I eligible for Tax Deduction of Rs 200000 after completion of my property?
Yes, you can claim the deduction of home loan interest u/s 24(b).
Hi,
I am a first time home buyer and got a loan of 45 lakh. In this newly constructed home my parents are staying and I am staying in a different city in a rented house.
Can I claim HRA, the principle under 80C and interest under 24b all at once? and in which category will it fall? Self-occupied or let out?
Yes, you can claim HRA, 80C deduction and 24b. it can be claimed as a self-occupied house.