Save TAX when you Pay Interest on Housing Loan

Save TAX when you Pay Interest on Housing Loan

Buying a own house is a dream come true for everyone. How does home loan gives us benefit in taxation. Well benefit U/s 24, 80C, and 80 EE can be claimed. Benefit of Principal amount and Interest paid on loan taken can be claimed.


Section 80C:

Under Section 80C of the Income Tax Act, one can avail tax benefits on principal amount of the home loan. Maximum tax deduction allowed is Rs.1,50,000. The tax deduction is on the payment basis irrespective of the year for which the payment has been made. The amount paid towards stamp duty charges and registration fees is allowed for deduction under Section 80C. The stamp duty charges and registration fee charges are allowed for deduction even if you  haven’t taken a home loan. Tax benefit for repayment of principal loan amount is allowed after the construction of the house is complete.


Section 24:

Tax benefit is available on the interest that is paid towards the home loan under Section 24. The tax is deducted on an accrual basis. Maximum tax deduction allowed under Section 24 is Rs.2 lakh. This can be claimed on yearly basis even if no payments have been made during that year. If the house is not constructed within 3 years from the end of the financial year that the loan was taken, you will be allowed to claim only Rs.30,000 as deduction.

If loan is taken to repair, reconstruct or renew your house, then you won’t get any tax deductions on the interest paid. If the interest for the loan taken to purchase or construct the house has been paid before the house has been completed, then the aggregate of the amount is allowed for deduction in 5 equal installments for 5 successive financial years.


Section 80EE:

Section 80EE offers tax benefit on interest paid on home loan for first time buyers. The loan must be sanctioned between 1st April, 2013 and 31st March, 2014. The loan amount cannot exceed Rs.25 lakh. The value of the residential property cannot exceed Rs.40 lakh. The deduction under sec 80EE cannot exceed Rs.1 lakh.


When Loan is repaid in EMI to Bank?

In the event you are repaying the home loan under EMI plan, you will be eligible to claim both the interest and principal component on the payment you make during that year. Heavy monthly EMI will burden your cash flow. Therefore, government is offering tax benefits to reduce the EMI burden to a certain extent.

Deductions can be claimed as followed:

The interest paid up to Rs.2 lakh or the actual amount that you have repaid can be claimed as deduction under Section 24. The deduction on interest can be claimed only when you have the possession of the house.

Principal amount that you pay can be claimed to the maximum of Rs.1,50,000 under Section 80C. The limit across all investments under Section 80C is capped to a maximum of Rs.1,50,000.

Stamp duty charges and registration charges are eligible for deductions under Section 80C. This can be availed for the year in which you make the payment. Processing fee for the sanctioned loan, prepayment charges and service fee is eligible for deductions under Section 24 of the IT Act.

If one missed a few EMI’s during a financial year, still eligible to claim deduction on the interest part of the EMI for the entire year. Section 24 clearly mentions the words “paid or payable” in respect of interest payment on housing loan.


For let-out Property:

If you decide to let out the property, the treatment for principal amount repaid stays the same. Interest paid can be fully claimed as deduction. There is no cap of Rs.2 lakh on rented property. To arrive at total income from house property, entire interest income is deducted from rental income. There is no cap on the tax benefit for interest payment even if the house is completed after 3 years for let- out property. Let-out property can claim deduction for loan taken for repairs, renewal and reconstruction without a limit. HRA  can be claimed if there is a let-out your property and due to certain reasons one is staying in a rented place. One cannot rent out a flat in the same building already staying at just to avoid taxes.


The House is Owned and Self-Occupied by more than one Person or Co- own the House jointly with Wife:

Many take a joint loan as it increases the loan amount eligibility. If husband and wife own a property, there is no issue relating to the succession. If one has taken a home loan along with wife who is working then both can claim separate deductions in ITR. Individually can claim up to a maximum of Rs.1,50,000 individually under Section 80C. The owners who have own the house and are occupying the house can individually claim for deduction on the account of interest that is paid on the amount that is borrowed. The place can be given out for rent and there is no restriction on the amount. The deductions can be claimed in the ratio of ownership. The tax benefits are as follows: Interest paid on loan is eligible for deduction up to Rs.2 lakh under Section 24 when the property is self-occupied.The principal amount repayment of up to Rs.1,50,000 is eligible for deduction under Section 80C. The planning for tax benefits for the joint owners in done in such a way that all of the owners can avail the tax benefits and no part of the total repayment is going waste.

Issues if taking a joint home loan:

If you decide to buy another house in the future, then one person will be termed as the owner and the other will be treated as let-out even if you aren’t paying rent. The second house will be deemed as rented out and you will have to pay the income tax on the rent received as per prevailing market rates.


Two Home Loans:

In case of multiple home loans, tax benefits can be claimed. But the benefits available towards principal repayment is limited to Rs.1,50,000. The interest paid on loan is eligible for deduction up to Rs.2 lakh under Section 24. There is no cap of Rs.2 lakh under Section 24 if the house is let-out. The interest then paid can be deducted from the Income from House Property under Section 23.One property can be chosen as self-occupied and the other will be considered as let- out property.


If you have borrowed from a Friend or from a Family Member:

In the event you have taken a loan from a friend or a family member, the repayment for the same won’t attract any deductions under Section 80C. There will be benefit of interest payable u/s 24 if there is certificate given by such person.


First time Buyer and are taking a Loan for Residential House Property:

A new Section 80EE was inserted for the Assessment Year 2014-2015 and 2015-2016. The purpose of this is to promote house ownership and creating jobs for the construction workers. The tax benefit is available only to first time buyers. The value of the house cannot be above Rs.40lakh. The loan taken should not be more than Rs.25lakh.

The first time buyer must take a loan from any financial institution or housing finance company. The loan should be sanctioned between 1st April, 2013 and 31st March, 2014.

The assessee can claim deduction up to Rs.1 lakh in the Assessment year 2014- 2015. The deductions can be claimed in 2 assessment years. If in the AY 2014- 2015, you haven’t claimed up to Rs.1 lakh, then you can claim the same in the 2015-2016 Assessment year.

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