Mr Ravi wanted to purchase a house property worth Rs 45 lakh and has applied for a home loan with ABC bank in April 2019. The loan was approved in a month and he bought the house. The stamp duty value as on the date of purchase was Rs 45 lakh. The bank sanctioned his loan on the following terms:
- Loan amount- Rs 45 lakh
- Tenure (in years) – 15 years
- Rate of interest – 8.55% per annum
Ravi will have to pay an EMI of Rs 5,33,343 every year, which will be divided into interest and a principal component. The loan amount will be amortised every year on the basis of the repayment made by the individual.
Below is the amortisation schedule for the next 15 years:
| Amortisation Schedule starting FY 2019-20 | |||||
| Year | Opening Balance | EMI per year | Interest paid yearly | Principal paid yearly | Closing Balance |
| 1 | 45,00,000 | 5,33,343 | 3,78,786 | 1,54,557 | 43,45,443 |
| 2 | 43,45,443 | 5,33,343 | 3,65,042 | 1,68,302 | 41,77,142 |
| 3 | 41,77,142 | 5,33,343 | 3,50,074 | 1,83,269 | 39,93,873 |
| 4 | 39,93,873 | 5,33,343 | 3,33,776 | 1,99,567 | 37,94,305 |
| 5 | 37,94,305 | 5,33,343 | 3,16,028 | 2,17,315 | 35,76,990 |
| 6 | 35,76,990 | 5,33,343 | 2,96,702 | 2,36,641 | 33,40,349 |
| 7 | 33,40,349 | 5,33,343 | 2,75,657 | 2,57,686 | 30,82,663 |
| 8 | 30,82,663 | 5,33,343 | 2,52,741 | 2,80,603 | 28,02,060 |
| 9 | 28,02,060 | 5,33,343 | 2,27,786 | 3,05,557 | 24,96,503 |
| 10 | 24,96,503 | 5,33,343 | 2,00,613 | 3,32,731 | 21,63,773 |
| 11 | 21,63,773 | 5,33,343 | 1,71,022 | 3,62,321 | 18,01,452 |
| 12 | 18,01,452 | 5,33,343 | 1,38,801 | 3,94,542 | 14,06,909 |
| 13 | 14,06,909 | 5,33,343 | 1,03,714 | 4,29,630 | 9,77,280 |
| 14 | 9,77,280 | 5,33,343 | 65,506 | 4,67,837 | 5,09,443 |
| 15 | 5,09,443 | 5,33,343 | 23,901 | 5,09,443 | 0 |
Income tax laws in India provide an individual with an interest deduction benefit of home loan under Section 24 and Section 80EEA. Under Section 24, an individual can claim an interest deduction of Rs 2 lakh, for self-occupied property.
Under Section 80EEA, announced in the Union Budget 2019, an additional interest deduction benefit of Rs 1.5 lakh will be provided for a home whose stamp duty value is not more than Rs 45 lakhs; the loan should have been sanctioned in the FY 2019-20. This deduction is over and above the deduction of Rs 2 lakh allowed in Section 24.
Also, an individual can claim up to Rs 1.5 lakh under Section 80C for the principal repayment done during the FY.
Also Read: Union Budget 2019: Additional Tax Deduction on Home Loan Interest
So, an individual can enjoy a total benefit of Rs 3.5 lakh for the interest payment and Rs 1.5 lakh for the principal repaid made during the FY.
Ravi will pay interest of more than Rs 3.5 lakh in the initial years of loan repayment. However, starting the 4th year, Ravi’s interest outgo will be less than the total eligible deduction limit of Rs 3.5 lakh.
In the table below:
- The 1st column shows the year.
- The 2nd column shows the interest paid out yearly.
- The 3rd column shows the deduction claimed under section 24 = Maximum allowed Rs 2 lakh.
- The 4th column shows the deduction claimed under Section 80EEA = Maximum allowed Rs 1.5 lakh.
- The 5th column shows the interest paid but no deduction claimed.
- The 6th column shows unclaimed balances in 80EEA i.e. extra deduction available to taxpayer however, it remains unclaimed.
Interest details
| Year | Interest paid yearly | Deduction under section 24 | Deduction under section 80EEA | Interest paid but unclaimed | Remaining balance section 80EEA |
| 1 | 3,78,786 | 2,00,000 | 1,50,000 | 28,786 | nil |
| 2 | 3,65,042 | 2,00,000 | 1,50,000 | 15,042 | nil |
| 3 | 3,50,074 | 2,00,000 | 1,50,000 | 74 | nil |
| 4 | 3,33,776 | 2,00,000 | 1,33,776 | nil | 16,224 |
| 5 | 3,16,028 | 2,00,000 | 1,16,028 | nil | 33,972 |
| 6 | 2,96,702 | 2,00,000 | 96,702 | nil | 53,298 |
| 7 | 2,75,657 | 2,00,000 | 75,657 | nil | 74,343 |
| 8 | 2,52,741 | 2,00,000 | 52,741 | nil | 97,259 |
| 9 | 2,27,786 | 2,00,000 | 27,786 | nil | 1,22,214 |
| 10 | 2,00,613 | 2,00,000 | 613 | nil | 1,49,387 |
| 11 | 1,71,022 | 1,71,022 | nil | nil | 1,50,000 |
| 12 | 1,38,801 | 1,38,801 | nil | nil | 1,50,000 |
| 13 | 1,03,714 | 1,03,714 | nil | nil | 1,50,000 |
| 14 | 65,506 | 65,506 | nil | nil | 1,50,000 |
| 15 | 23,901 | 23,901 | nil | nil | 1,50,000 |
Now, if you look at the analysis for principal repayment, more principal is repaid than what can be claimed under Section 80C.
| Year | Principal paid yearly | Principal claimed | Unclaimed principal |
| 1 | 1,54,557 | 1,50,000 | 4,557 |
| 2 | 1,68,302 | 1,50,000 | 18,302 |
| 3 | 1,83,269 | 1,50,000 | 33,269 |
| 4 | 1,99,567 | 1,50,000 | 49,567 |
| 5 | 2,17,315 | 1,50,000 | 67,315 |
| 6 | 2,36,641 | 1,50,000 | 86,641 |
| 7 | 2,57,686 | 1,50,000 | 1,07,686 |
| 8 | 2,80,603 | 1,50,000 | 1,30,603 |
| 9 | 3,05,557 | 1,50,000 | 1,55,557 |
| 10 | 3,32,731 | 1,50,000 | 1,82,731 |
| 11 | 3,62,321 | 1,50,000 | 2,12,321 |
| 12 | 3,94,542 | 1,50,000 | 2,44,542 |
| 13 | 4,29,630 | 1,50,000 | 2,79,630 |
| 14 | 4,67,837 | 1,50,000 | 3,17,837 |
| 15 | 5,09,443 | 1,50,000 | 3,59,443 |
It appears that the deduction specified under Section 80EEA is more than what was desirable. Some of the extra deduction of Rs 1.5 lakh remains unclaimed starting 4th year. However, it would have helped had the government considered enhancing the deduction for the principal repaid instead. [Your interest payment schedule is likely to look similar to the above for a similar loan and terms.]
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