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.
Hello Sir/Madam,
I purchased a new house in Jan 2018 (Under construction property).
From Jan 2018 to Aug 2019, I paid home loan interest up to 2 Lakhs (for the under-construction property).
In Sep 2019, I got possession.
In FY 2019 – 2020, I am paying 2.73 Lakhs home loan interest.
Questions:-
1. In which section I will show the interest paid before possession? And how much I can show?
2. Can I show 2.73 lakhs in section 24 in FY 2019 – 2020?
3. Can section 80EE or 80 EEA is applicable to me?
Thanks in advance
In case of under-construction property, you can claim the deduction u/s 24 interest on the home loan in five equal instalments starting from the year in which the property is acquired or construction is completed up to a maximum of Rs 2 lakh. The principal portion of the EMI paid for the year is allowed as a deduction under Section 80C. The maximum amount that can be claimed is up to Rs 1.5 lakh.
If the following conditions are satisfied you can claim deduction u/s 80EE up to Rs. 50,000 per year until the loan is repaid –
Value of the house should be Rs 50 lakhs or less
A loan taken for the house must be Rs 35 lakhs or less
The loan must be sanctioned between 01.04.2016 to 31.03.2017
As on the date of the sanction of loan, no other house property must be owned by you
I had booked flat on Aug 16 and loan approved for 35 lacs on Nov 16 for same. Possession of flat is due on Jan 19.
Below is interest paid in 3 yrs till the date of possession
FY 2016-17 – 28686
FY 2017-18 – 161936
FY 2018-19 – 263270
The interest of current FY 2019-20 will be approximately 273640.
how to calculate the amount for Section 24(B) for interest paid as interest for current FY is exceeding 2lacs?
As this is first home and satisfying all conditions of 80EE, I can declare 50,000 in 80EE.
Do I have option to refile IT returns for previous FY years?
You can claim a deduction of interest paid in earlier FYs as “pre-acquisition interest” in 5 equal instalments beginning from FY 2018-19. However, if it is a self-occupied property, maximum of 2 lacs can be claimed in a particular FY.
Hi,
I have an accumulated pre construction Interest for past 4 years of Rs. 10,26,577.00. Now The house is deemed let out. The house was handed over in April 2019. While filing online returns I am getting only 2,00,000.00 exemption under section 24. How do I claim accumulated interest while filing online return given I will have Interest from House loan more than 2 lakh this year too. So next year will be same issue for me.
Section 24 deductions are capped at 2,00,000. That means even if you have paid interest above 2L, only 2L will be allowed as deduction.
I have purchased a Flat in April 2018 and Took a Home loan on the same month i.e April 2018 and I am a First-time Property buyer with loan amount less than 30 lakhs and Total Property Cost less than 50laks can anybody suggest will I be eligible for Tax claiming under section 80EE.
Deduction u/s 80EE is only allowed to those assessees, to whom a loan has been sanctioned on or before 31/03/2017.
My taxable income is 560000/-. I have used my 80c limit of 1.5 lakh, including my home loan. How I can reduce my tax?
You can invest Rs 50,000 under section 80CCD (1B) in the National Pension Scheme. You can pay Rs 25,000 premium for medical insurance policy(ies) for yourself and family and claim a deduction of Rs 50000 from gross total income under section 80D. This deduction can be up to 75000 if you also pay the medical insurance premium for your senior citizen parents.
I have taken a loan which sanctions in April 2017 with Axis bank. The old loan account was closed in Oct 2018 & the new account was opened in 2018 for the same property. So Can I claim additional interest under section 80 EE under new loan account?
The construction was completed in 2018…