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.
Submit Query for Tax Return Filing Software
Read Also: Tips to Save Income Tax in India
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,
An employee has taken 3 housing loans for the same residence, one for construction,one for extension and other for repair/renovation. How can he given principal- wise and interest-wise deductions for the three loans?
Repayment of Principle of Housing Loan shall be allowed as deduction under 80C maximum upto Rs.1.5 Lakhs. Interest on housing loan for construction will be allowed in five installment from the date of completion of construction. Interest on housing loan for extension or for repair or renovation is allowed only upto Rs.30000. Interest is allowed under section 24(b).
Hi,
My home loan of 22 lacs ( less than 35lacs) has been sanctioned in Aug 2016 i.e. FY-2016-17 and total cost of project is 25 Lacs ( Less than 50 Lacs). This is my first residential property. So I am eligible for 50,000/- under section 80EE.
But property is under construction and will get possession in year 2019. can I claim 50,000/- under section 80EE in FY 2016-17 or it will be claimed along with 24(b) after possession i.e after year 2019.
[Question : Does section 80EE applies to under construction property too ? ]
The property is under construction, you are not eligible to claim deduction of interest till the completion of construction. Hence you cannot claim deduction under section 80EE in AY 2017-18. Deduction under section 80EE can be claim if the value of Residential Property is less than Rs.50 Lakhs. If the property is under construction, we cannot determined the Value of property. Therefore 80EE deduction is not allowed.
I have taken house for 51 lacs, out of which i have taken loan of 41.5 lacs. The construction is complete but i have not taken the possession. From 1st Apr 2016 to 31 Mar 2017, I would have paid 4.5 lacs (3.7 lac as interest and 0.8 as principle amount). Please suggest how can i use the amount paid as EMI for tax saving for the year 2016-17. I am paying the EMI since Dec 2012.
If the House is Self-Occupied than interest is allowable upto maximum of Rs 2 Lakhs can be claimed under section 24(b) and if house is let-out than interest is allowable without any limit under section 24(b). And Repayment of Principle can be claimed as deduction under section 80C subject to maximum of Rs.1.5 lakhs. Apart from this, from AY 2017-18 an Additional deduction of Interest of Rs. 50000 can be claimed under section 80EE subject to specified condition mentioned therein.
I have property which is given on rent, i know the interest part is fully deduction under section 24, can i claim the deduction for the society bills which i am paying on monthly basis?
There is no deduction of society bills.
What are the documents required to furnish to avail exemption under 24 b for an independent house. I have an independent house in Lucknow where my parents reside. I have a loan on it for Rs 23 Lakh since 2015. The electricity bill and water bill is still under the previous owners name, but we are living in it.
when you are take a house loan then bank give you an annually statement copy related to the payment of installment. As a proof you can use the same.