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 THE HOUSING LOAN IST INSTALEMENT OF RS.4 LAC FOR CONSTRUCTION OF HOUSE OUT OF TOTAL SANCTIONED AMT.4050000/-. IN FY 2016-17. I HAVE REPAID THE PRINCIPAL AMT. 131000/- FROM DEC16-MARCH17 AND INTEREST AMT.14000/-FROM DEC16 TO MARCH17. CAN I AVAIL THE REBATE OF FULL PRINCIPAL REPAYMENT AMT.AND INTEREST ACCORDING TO INCOME TAX RULES. FURTTHER I WOULD LIKE TO STATE HERE THAT CONSTRUCTION IS UNDER PROCESS STILL PLENTH LEVEL WORK IS COMPLETED. CAN I ALSO TAKE THE REBATE OF HRA PAID BY MY COMPANY FOR RENT PAID BY ME FROM APRIL 2016 TO MARCH 2017. PLEASE GUIDE ME.
Sir, if your house is still under development phase then for interest amount you can take rebate in 5 equal installments. Whereas if your house is ready in that situation you can take principal amount benefit till amount Rs. 150000/- and for interest amount if it is self occupied in that situation via sec 24b you can take Rs. 150000/- benefit and via sec 80EE additional Rs.200000/- benefit. But if your house is rented in that situation you can take whole interest amount benefit via sec 24b without any limitation.
Hi,
My loan was sanctioned in 2nd week of March 2016 but first part amount was disbursed in last week of March. I am paying EMI starting May 2016. Can I claim for tax exemption of 50k under 80ee for 1st time buyer? Per logic as am incurring loan payment expenses starting May 2016 won’t I be eligible for this exemption??
For F.Y. 2016-17 i.e. A.Y. 2017-18 you can claim the deduction of Interest under section 24 and 80EE both. If loan amount is less than INR 32 lacs and property value is less than INR 50 lacs.
Dear Sir
Do me a favor in understanding 80EE to avail additional exemption ? I have invested in a construction linked property in FY 2015-16 and will have possession / registration in next FY 2017-18. The property cost is less than 50 laks and loan amt (=95% of property cost under CLP plan) is less than 32 laks. Currently I am staying at a rented house (Ghaziabad). In current FY 2016-17, can I get exemption u/s 80EE, if so, how much and under which section I have to claim and what are those necessary documents are required to be submitted, please confirm if possible.
In FY 2016-17 i.e. A.Y. 2017-18 if you paid interest on housing loan then there is 2 section where you can claim the deduction. First section 24 which for the self-occupied property you can claim INR 1,50,000 amount for deduction whereas in section 80EE you can claim additional INR 2,00,000 deduction against interest amount. As well as in section 80C you can claim the principal amount deduction too.
Sir, need more clarity. I will get my possession / get registration by next FY 2017-18 (not in current FY 2016-17). I used to pay principle and interest to Housing Loan company since FY 2014-15 as I have booked flat under CLP plan in FY 2014-15. My Loan was sanctioned in FY 2014-15. As on date, total 95% payment being made to builders (out of which fund disbursed by Housing finance company below 30 lakhs so far). I don’t own any flat in present day (staying at a rented huse), in this scenario, do I have eligibility to get exemption of Rs. 50k u/s 80EE in current FY 2016-17. I want to claim only deduction u/s 80EE in current FY, please suggest how can I get claim. Thanks !
Does section 80EE applies to under construction property too i will be getting possession Sep 17 and can i also claim for HRA with 80EE. I am claiming it in FY16-17 years
Taken home loan of 30 lacs for property of 47.90 lacs in November 2016. How can I take advantage of section 80ee as interest is less than 2 lacs