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.
Respected sir,
Will I be eligible for deduction under this section if my house loan is sanctioned after 01 Apr 2017.
Thanks and regards
Kamlesh Pant
As the prerequisite for claiming deduction u/s 80EE, is that loan should be sanctioned between 01/04/2016 to 31/03/2017, so you will not be eligible to claim deduction u/s 80EE
I HAVE PAID MY TOTAL LOAN OUTSTANDING IN NOVEMBER AND I HAVE NO DEDUCTION U/S 80 C EXCEPT HOUSING LOAN PRINCIPAL. KINDLY TELL ME THE CLAIM AMOUNT IN 80C
Only principal amount paid during the period is eligible for 80C deduction.
Dear Sir,
I am paying H/Loan Interest of 350000/annum and have paid TDS amount of Rs 62000/- in this Fy. As per section 24 how much deduction can I claim and further can I also claim the deduction of TDS amount of 62000/-
My husband’s father taken a home loan and was paying EMI but now after retirement, my husband is paying the EMI. The loan is taken on my husband’s fathers name for the renovation of the house. Now whether my husband takes tax saving benefit of EMI paid and if not then whether is it possible to change the name of loan owner in the bank from my husband’s father name to my husband name?
For claiming tax benefits, both the house and loan should be in the name of the person (owned or co-owned) claiming such benefit.
Hello,
I’ve a query on income tax exemption on multiple home loans.
For my first home loan, I’m paying interest of 1.4 Lakhs and principal repayment of 1.38 Lakhs.
For my second home loan, I’m paying interest of 4.35 Lakhs and principal repayment of 1.42 Lakhs.
My query is specifically for the second loan. If I declare second home as deemed let-out then can I claim an exemption for full 4.35 Lakhs (excluding nominal rent)?
Or is it that maximum benefit that I can avail together for both house is 2 Lakhs?
If its the former one, then can you point me to an income tax section or an official link that I can present to people evaluating IT liability in my office, as they reckon its the later one and the benefit that I would get on interest payment cannot exceed 2Lakhs.
Thanks.
As the second house is treated as deemed let -out and as per recent amendments in section 71, losses under house property can only be set off up to Rs. 2 lacs, the remaining amount of interest can carry forward for next years for set off.