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.
Sir,
I have taken loan in current fiscal. The benefit of deduction u/s 80EE i.e additional interest for first time home buyer for Rs. 50000/- will be only for AY 2017-18 or till the tenure of loan is outstanding
Hi
I have purchased a new flat. I have taken a loan of Rs.39 lakhs and the flat value is 46 lakhs. Whether i can avail Rs.50000 exemption?
No. Your loan amount should be less than or equal to 35 Lakh only then you are eligible.
Hi,
I have purchased a flat (in different city) on a home loan. The flat is complete, however it is vacant at the moment. I am myself residing at my work location (Gurgaon) on a rented house.
The value of property is less than Rs 40 Lakh. The loan amount is less than Rs 35 lakh.
I paid Rs 98,714 as principal component and Rs 3,09,491 as interest component for my home loan. How much of this can I claim under tax deduction and how should I show this?
What is loss from house property? How do I show that for my tax filing? If I keep a tenant in my flat, how will that affect my tax declaration sheet?
Thanks and regards,
Arvind
For the F.Y. 2015-2016, you can claim your principal amount deduction in section 80C where the max limit is 1,50,000/- and the interest amount deduction for the self occupied property is 150000/- deduction you can claim But for F.Y. 2016-17 there is a separate section 80EE will be introduce in which you can claim other than above extra 200000/- deduction of interest amount.
But if you take benefit of HRA than you cant take benefit of the house property interest and principal amount deduction as a self occupied property. In that case your property will be treated as deemed let out property.
sir,
I am a state govt employee. I applied a home loan of Rs 23 Lac jointly with my mother on dated Feb-2015 on my behalf. The Land on which i am constructing this house is registered on my mother,s name . my mother is a pensioner. she is getting 9000( nine thousand only) per month pension. I have made the agreement of home Loan on Sept 2015 with bank and i withdrawal first installment of loan in Sept 2015 and I am also repaying the Loan from my salary since Sept-2015. now my house is completed in oct-2016 and i am not using this house , my mother and my brother is living in this house. I am a govt employee hence i lived far away from this house. because house was not completed therefore i did not claim any tax exemption during financial year 2014-15. sir my question is as following-
1) can i get the first time exemption under sect-80 EE ? my home loan was senctioned between April-2015 to Sept-2016.
2) can I get the exemption on interest that i have paid during construction period ie sept-2015 to oct-2016?
3) I want to purchase a another house in another place for me & my childrens which will be registered on my name . In this case this house will be my first house but this home loan will be my second home loan. can i get same tax exemption on this house ?
1. Sir Sec 80EE exemption is available in F.Y. 2014-15 and 2016-17 not available in 2015-16.
2. Yes u can take credit of interest paid in construction period in 5 equal installments
3. Sir if you take deduction of interest and principal amount than in the eye of law you are treated yourself as a owner of the house property in this case if you purchase another house with your name it ll be treated as let out property. In our advice you can purchase new house with your spouse name.
thank you sir,
in continuation to above quarry-
if i take second home loan and i purchased a home on my wife,s name then will i be able to take same tax exemption on second home loan ?
sir if i pay my first home loan in 1 or 2 year by selling my old property ( Land) or through EPF and then i take a second home loan then will i be able to take all tax exemption on second home loan?
Hi, I am buying a fully constructed flat in delhi. Total price is less then 50 lacs.
I am taking loan of Rs 40 lacs ( which includes home loan of Rs 30 lacs+ construction loan of Rs 10 lacs) as house is old and it requires further construction)
Will I be eligible for additional tax benefit of Rs 50000 ?
As total loan value is more then 35 lacs.
Your early response is highly appreciated
Thanks
Sanjay
House should be new then only you will be eligible to take that exemption.