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.
Hi,
I have taken loan amount of 28 Lac on July 2017 and property value is 36 lac. Am I eligible for 80EE?
As your loan has been sanctioned after march, 2017, you are not eligible for claiming deduction u/s 80EE.
Me and my father have taken a home loan of 10 Lakh jointly. My father is co-borrower. The loan is for the renovation of the house. The house is on my father’s name. And I am living in a different city, my father stays in that house and that is in construction. Probably will be completed in a month or so. I am paying 9k as EMI of the loan.
Can I get the tax benefit for interest as well as the principal amount on the loan i.e section 24(b) and 80C?
Thanks in advance.
In order to claim tax benefits u/s 24, the main condition is that the property should be owned or co-owned. Since the property in your case is on father’s name, you cannot claim these deductions.
Deduction u/s 80C is available only where the loan is taken for acquisition or construction of residential house.
Hi,
Is there a restriction on where the property should be present like within the city municipal or town municipal/metro city etc?
Can i claim tax benefit under section 80EE of income tax for interest paid for home loan of an under construction property if I am otherwise eligible.
As per the wordings of section 80EE, the loan should be taken for “acquisition” of residential property. Thus you cannot claim deduction w.r.t. under the constructed property.
Hi.
My total Home loan Interest was 3 lakh in FY 2017-18, and out of which only 2 lakh was allowed as for tax deduction.
Now as per rules, this balance interest component can be carried forward in the next 8 yrs, but anyone explains me the process for that.
Suppose 3 years later my interest outgo is 1.5 lakh then can I take the carry forward benefit in one go Or there is some restrictions or rules (like for pre-construction period interest is carry-forwarded in 5 equal installments)
Please clarify your query. You can refer to the examples available for section 24b read with section 71(3A)