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 (New section 130) 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 (New Section 22) 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 (New Section 130) 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 (New Section 131)
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 on 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 a home loan is taken jointly, each co-borrower can claim a deduction of up to Rs. 2 lakh for interest on the home loan under Section 24(b) and up to Rs. 1.50 lakh for principal repayment under Section 80C in their respective income tax returns. However, the borrowers must also be co-owners of the property. Joint home loans can therefore help families avail higher overall tax benefits.
| 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 corresponding to sections 22(2), 123, 130, 131 under the new Income Tax Act, 2025.
I am state gov employee and have taken housing advance from my office. Currently i m paying only principle amount. Interest will pay once principle is fully repaid. How should I claim interest deduction in ITR?
Please refer the section 80C, 24(b), 80EE and 80EEA.
Regret to state that you do not give any advice. You only advice people to refer to certain sections of the I. tax Act.
Pointless for people to be seeking any advice from you.
Sir, we provide solutions to queries that are related to our blog. We don’t provide any consultancy.
It is the interest debited in the account that can be claimed. It is clarified that the claim under section 24 is for interest accrued in the loan account and even if not actually paid by the borrower. Just take a statement of account for the last financial year and add 12 months interest debited in the account and claim it subject to a maximum of 2 lacs. It is permitted. Most of the PSU employees have filed and it’s permitted.
The housing loan is taken on 20/11/20. Pre -emi interest for 20/1/20 – 30/11/20 paid on 01/12/20. Thereafter interest for December, January, February and March paid/will be paid on the first of the following month. I wish to know whether the interest for the month of March 2021 that will be paid on 01/04/21 will be eligible for deduction in the current financial year.
Please refer section 24(b), 80EEA, 80EE, and 80C of the income tax act 1961
I have gone through those sections of the I. Tax Act. The question that I have asked is not properly addressed. That was the reason I have asked the question. Would appreciate your reply. Thanks.
Hi, Section 80EEA says the stamp value of the property should be less than 45 lakhs. Here stamp value of the property refers to stamp duty paid or the value of the property? I have purchased a property of value 1.37 Cr and the stamp duty paid is around 8 Lakhs. Would need more clarification.
Hi Sir
My housing loan was approved in May 2017 and it was my first house. Am I eligible for deduction in 80EE?
I have taken a loan on a house under construction in Sept 2019 and have started paying EMIs. However, I am yet to get possession., as it is delayed due to the pandemic. What sort of tax rebate and under what categories can I claim while filing ITR for the year completing March 31st, 2020. Request a reply plz.
Please refer section 24(b), 80eea, and 80c of the income tax act 1961
Hi,
My question is regarding ITR Excel/Java Utility.
My wife and I have bought a house property jointly for which the total interest for FY 2019-20 is 3,50,000 and is equally contributed by both.
So after entering the ownership as 50%,
should I enter the field “B2 (v) Interest payable on borrowed capital” in the ITR2 Form as half of 3,50,000 = 1.75L or
should I enter 3,50,000 expecting the ITR2 Excel/Java utility to do the calculation?