Tax Benefits on Home Loan

Availing of a home loan for buying a house not only helps improve your liquidity quotient but also endows you with tax benefits and rebates that can reduce your overall tax liability.

Deduction on interest amount: Under Section 24 of the Income Tax Act, if you are paying equated monthly installments (EMIs) for a home loan, the interest component in the EMI can be claimed as a deduction. However, you must be both an owner and a co-borrower (in the loan) to claim tax benefits. This deduction can be claimed from the year in which the construction of the house is completed. Every year, a maximum of Rs 2 lakh can be claimed for deduction.

Deduction on principal repayment: The component of your EMI which goes towards payment of the principal amount can also be claimed for deduction under Section 80C of the Income Tax Act. A maximum of Rs 1.5 lakh can be claimed as a deduction under Section 80C.

Deduction on stamp duty and registration charges: Under Section 80C, you can also claim a deduction for payment of stamp duty and registration charges. However, these can be claimed only in the year in which these were paid i.e. immediately after buying a property and getting it registered in your name.

In addition, the processing fee, service fees, or any prepayment fees paid for getting a home loan sanctioned can also be claimed by the home buyer under Section 24 of the Income Tax Act.

Deduction on pre-construction interest: This tax benefit under Section 24 and Section 80C of the Income Tax Act is available only in the financial year (FY) in which the house is acquired or the construction gets completed. You cannot claim any deduction to this end for an under-construction property. However, you can claim the pre-construction interest by adding the entire amount and claiming it in five equal installments. The total deduction, however, should not exceed Rs 2 lakh and the house must be self-occupied for claiming this tax benefit.

Deduction under Section 80EE: Section 80EE under the Income Tax Act is a relatively new section introduced in March 2013 to provide tax benefits to first-time home buyers, who have purchased a house worth Rs 40 lakh or less with a home loan of Rs 25 lakh or less.

The section was revised and re-introduced in March 2016 with an additional deduction of Rs 50,000 for interest on the home loan. This incentive would be over and above the tax deduction of Rs 2,00,000 under Section 24 and Rs 1,50,000 under Section 80C. This Deduction of Section 80EE would be applicable only if:

• the value of the property purchased is less than Rs 50 lakh and the value of the loan taken is less than Rs 35 lakh
• the loan is sanctioned between 1st April 2016 and 31st March 2017
• The benefit of this deduction would be available until the time the repayment of the loan continues, from FY 2016-17 onward.

Deduction for Joint home loan: If a housing loan is taken out by two or more people, each can claim a deduction for the interest paid up to Rs.2 lakh. Tax can also be deducted on principal payments up to Rs.1.5 lakhs each. To be eligible for this deduction, all applicants must be co-owners of the property. As a result, a joint home loan may provide you with greater tax benefits.

The tax benefits listed above are per person and not per property. To explain further, in the case of co-ownership of property and joint home loans, each person repaying the amount is considered eligible for claiming the entire deduction separately.

Home buyers who are currently living in rented accommodations and claiming HRA benefits can also claim tax benefits on home loans under Section 24, Section 80EE & Section 80C.

Disclaimer: The opinions shown above are mainly for informational reasons and are based on market research. Deal Acres is not responsible for any actions made as a result of relying on the provided material and makes no representations as to its accuracy, completeness, or reliability.