Tax deductions available to the taxpayers on home loan
Tax Exemption

For the homeowners, interest paid on housing loans can maximise their income tax savings. Let’s see how much a home loan can reduce your taxable income.

Principal repayment

 The individuals can deduct the principal amount repaid under Section 80C up to a maximum limit of Rs 1.5 lakh. 

Interest repayment

1. Self-occupied property: According to Section 24 of the Income Tax Act, if the property is occupied by the owner for their residence throughout the year, a deduction of up to Rs 2 lakh for interest paid on the home loan will be allowed for interest paid on such property. The taxpayer can avail of this benefit if the loan was taken on or after 1st April 1999, and the acquisition/construction of the property is completed within five years.

If the loan acquisition/construction of the property is not completed within five years, the deduction is restricted to Rs 30,000 instead of Rs 2 lakh.

Hence, if the Gross Annual Value of a self-occupied property is Nil (i.e. where the property is not rented), the figure under the head ‘Income from house property’ will be negative because of availing of the deduction for interest paid on a home loan. The negative figure means loss under the head ‘ income from house property’.

2. Let-out property: In the case of let-out property or deemed let-out property, the property owner would be eligible to claim a deduction of actual interest paid on home loans during the year. There is no restriction for claiming the interest deduction.  

Suppose there is any loss under the house property head of income after claiming these deductions. In that case, such losses can be adjusted against other sources of income (such as salary, capital gains, business or professional income, other sources of income) up to Rs 2 lakh. However, the losses carried forward can be set off only against the house property income. 

Suppose any interest is paid during the period before the purchase or completion of construction of any property. The taxpayer can claim the deduction in five equal instalments starting from the year of purchase/completion of construction. However, one should note that the overall interest deduction would be allowed within limits discussed above for self-occupied, let-out or deemed to be let-out property.

Additional benefits for first-time home borrowers

  • Section 80EE

An additional Rs 50,000 for interest amount on housing loan is allowed for first time home borrowers. One can claim up to Rs 50,000 per year until the full repayment of the loan. The deduction is available if the loan is taken from 1 April 2016 to 31 March 2017. However, this benefit is available if certain conditions are satisfied:

  • The house value should be Rs 50 lakh or less
  • House loan must be Rs 35 lakh or less
  • The loan for buying a residential house property must be taken by a financial institution or a housing finance company between 01.04.2016 to 31.03.2017
  • the taxpayer should not be the owner of any other house property as of the date of the sanction of the loan.
  • Section 80EEA

Additional Rs 1.5 lakh deduction for interest on home loans is allowed for first time home borrowers over and above Rs 2 lakh deduction under Section 24. The deduction is available if the loan is taken from 1 April 2019 to 31 March 2020. Eventually, this period has got extended to 31st March 2022. However, this benefit is available if certain conditions are satisfied:

  • The stamp duty value of the house property purchased should be Rs 45 lakhs or less.
  • The loan must be taken from a financial institution or a housing finance company from 1 April 2019 to 31 March 2022.
  • The taxpayer should be a first-time home buyer and should not own any other house property (residential) as on the date of sanction of the loan.
  • The individual taxpayer should not claim deduction under the existing Section 80EE.

Section 80EE and Section 80EEA deductions are available over and above the limit of Rs 2 lakh allowed under Section 24 of the Income Tax Act. However, to claim these deductions, one should exhaust the limit of Section 24.

For any clarifications/feedback on the topic, please contact the writer at jyoti.arora@cleartax.in.

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