Home Loan: Tax benefits

Living in the current unprecedented times amidst the Covid pandemic, there is growing acceptance for owning a home that brings in more financial and emotional security. Moreover, with stability in property prices, interest rates being 15 year low and many projects available in the market, investing in your own home has become an attractive investment option.

In addition to that there are certain tax benefits on availing home loans for the taxpayers. Let’s have a look at various sections through which tax can be saved:

Interest deduction:

– Section 24(b) of the Income Tax Act allows a taxpayer buying a house property for self occupation for interest deduction upto Rs. 2 lacs if the house property is constructed within 5 years from the year ending in which home loan was taken, otherwise the deduction can be claimed only for Rs. 30,000. The deduction can be claimed from the year in which the property is acquired or constructed. Interest paid for pre construction period can be claimed in five equal annual instalments starting from the year in which property is acquired or constructed.

– If the house is Rented then there is no upper limit for interest deduction. However, from FY 2017-18 onwards loss from house property that can be set off against other heads of income has been restricted to Rs. 2,00,000.

– Section 80EE allows additional interest deduction of Rs.50,000 if the loan was availed in Financial Year 2016-17, the loan availed does not exceed Rs. 35 lacs, the value of the house property does not exceed Rs. 50 lacs and the taxpayer does not own any other house property on the date of sanction of loan.

– Section 80EEA allows additional interest deduction of Rs. 1.5 lacs if Section 80EE is not applicable, loan has been availed in Financial Year 2019-20, 2020-21, stamp value of the property purchased does not exceed Rs. 45 lacs and the taxpayer does not own any other house property on the date of sanction of loan.

Principal deduction:

– Section 80C of the Income Tax Act allows deduction of upto Rs.1.5 lacs on principal portion of the EMIs paid by the taxpayer during the Financial Year.

– Such deduction is allowed only after the construction of the property is completed for self occupation or letting out.

– However, the property should not be sold by the taxpayer for 5 years from the end of the Financial Year in which it was acquired or constructed. If sold, no deduction will be allowed for that year and any previous deduction claimed under this section will be added to the Total Income of the taxpayer for the current year.

– Principal Repayment on loan availed for reconstruction, addition, repair or renewal of the property is not allowed as deduction once the property is let out or self occupied or completion certificate is issued.

Stamp Duty and Registration charges:

– Section 80C also allows deduction of stamp duty and registration charges incurred by the taxpayer on transfer of house property to the taxpayer.

– The deduction can be claimed in the year in which these expenses are incurred.

Joint Home Loan:

– In order to maximize the above tax benefits, the taxpayer may opt for joint ownership of the property and become co-borrowers in home loan. In such a case, each co-borrower becomes eligible for full interest deduction of Rs. 2 lacs and principal repayment deduction of Rs. 1.5 lacs.