Many people dream of owning their own home someday, and if this financial year is the year you are planning on making your dream a reality, then this list of tax benefits on housing loans is tailored just for you. The government of India has offered deductions under different sections of the Income Tax Act on both the principal repayment and interest components of a housing loan. Let’s break it down.
- Deduction for the principal repayment
When you take on a loan, the repayment is usually made in the form of equated monthly instalments, or what is commonly known as EMIs. An EMI consists of principal repayment and an interest component. The principal component of your housing loan can be claimed as a deduction under Section 80C of the Income Tax Act and is subject to a maximum deduction of Rs.1,50,000 per annum.
Note that the house property purchased cannot be sold within five years of possession. Otherwise, the deductions claimed previously will need to be added back to the total income in the year of sale.
- Deduction for the interest component
On the interest component of the housing loan, you can avail of a tax deduction under Section 24 of the Income Tax Act, subject to a maximum deduction of Rs.2,00,000 per annum. If you let out your house property, there is no upper limit on claiming a tax deduction on the interest. However, loss from house property is restricted to Rs.2,00,000 in a financial year.
Note that this deduction can be claimed only from the year in which the construction of the house property has been completed. Also, note that the benefit of claiming Rs.2,00,000 as a deduction will be reduced to Rs.30,000 if the construction has not been completed within five years from the end of the financial year in which the housing loan has been availed.
- Deduction for pre-construction interest
What about a tax deduction on the interest paid during the pre-construction period? Well, the interest paid during the pre-construction period can also be claimed once the construction of the house property is completed. The entire pre-construction interest is to be divided into five equal instalments and can be claimed beginning from the financial year in which the construction is completed. This is in addition to the interest you can claim on that particular year’s interest payment. However, the total interest is capped at Rs.2,00,000 per annum.
- Additional deduction for FY 2021-22
Budget 2019 has introduced an additional deduction under Section 80EEA of the Income Tax Act to encourage Indians to invest in house property. Under this Section, an additional Rs.1,50,000 can be claimed as interest, provided the stamp value of the property is not more than Rs.45,00,000. The loan should be taken from a financial institution or housing finance company and should have been sanctioned between 1st April 2019 and 31st March 2021. However, Budget 2021 has extended this provision by a further year until 31st March 2022.
It is to be also noted that there is one more condition to be satisfied on the carpet area of the house property. The carpet area should not be more than 60 square metres in the specified metropolitan cities or 90 square metres in any other cities or towns. Hence, if you have bought a house property between 1st April 2021 and 31st March 2022, and you fulfil the above criteria, then you will be eligible to claim this additional deduction under Section 80EEA.
- Deduction for stamp duty and registration charges
The Income Tax Act provides for a deduction of stamp duty and registration charges paid on the purchase of a house property. These expenses are also covered under Section 80C of the Income Tax Act, subject to the total limit of Rs.1,50,000. These expenses can be claimed only in the year in which they are incurred.
For any clarifications/feedback on the topic, please contact the writer at athena.rebello@cleartax.in
I’m a Chartered Accountant by profession and a writer by passion. ClearTax lets me be both. I love travel, hot tubs, and coffee. I believe that life is short, so I always eat dessert first. Wait.. life is also too short to be reading bios… Go read my articles!
