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 availed two Home loans in this financial year 16-17. one for my family in native and another for self that is another city of my work
How do I claim Tax exemption ? both loans are below 50 lacs
You can claim exemption of interest of one house loan under self occupied property and interest on another house loan under deemed let out property. You can claim deduction of principle amount of loan under chapter VIÂA section 80C.
I intend to take a housing loan of Rs 60 lacs from my father,and pay him back in monthly installements,over 5 years.I will pay interest @9.5% on reducing balance.This is my first housing in mumbai,though I do not stay in it,due to my job,being in other city.Please advise,if I can get full exemption of interest paid,from my Income Tax?
Housing loan exemption only where the amount of loan has been taken from any approved authority. In your case you are taking loan from your father although you are paying interest to your father. Hence no deduction or exemption will be allowed to you.
Wrong!. Provided the father can give a interest certificate for tax, stating his PAN number it is possible and allowed. (ie father should file his income tax and show the EMI & interest received by him as income)
Interest is allowed u/s 80EE only where loan has been taken from a financial institution or a housing finance company. Interest on loan from father is not eligible for exemption U/s 80EE.
Dear Sir,
I have paid Rs/-1,63,000 as interest on home loan during AY 2016-17. My employer has shown it in form 16 also. While filing online return on ITR-1, there is no colomn where I can show this interest paid. kinldy guide me that how and where in the e-filing form, I can show this deduction.
Thanking you in advance for your help
Dr Mukesh Chander
Ans: Just Go to Schedule HP in ITR show Interest under Income from house property head in negative Department will allow you to adjust interest with Salary Income.
Hi,
I bought a house in April 2013. And for the current financial year (2015 -2016) , folliwng is the Interest and Principal repayment split,
Interest – 1,81,755
Principal – 4,18,000
How much would I be eligible for Tax benefit? And the house is vacant. Last year I claimed in 80EE. Is that applicable this year also?
Regards,
Shankari
under which section the 5 equally divided interest amount paid in pre-completion phase will be exempted/deducted. other than 2 lakh for that AY? eg for FY 13-14, 14-15 if AY is 16-17.
Section 24 of income tax act 1961