A self-owned home is dream of everyone which require a lot of financial planning and sometimes a huge fund is required to manifest this dream in reality.
Funds provided by bank/financial institution to an individual/entity for construction, extension or renovation of a residential property is called a Home Loan
What if, I tell you, that you can live in your dream house and parallel to that save your taxes?
Income Tax Act 1961, provides several tax benefits to individuals on their home loan EMI.
Deduction under section 80C (Deduction on Principal Repayment)
The EMI paid by you has two components – principal repayment and interest paid. The amount repaid as principal component in the EMI & stamp duty, registration fee, or any other expenses can be claimed as a deduction under section 80C of the Income-tax Act, 1961 for self-occupied property.
Under this, an individual is entitled to tax deduction on the amount paid as repayment of the principal component on the housing loan. In this, an amount upto Rs.1,50,000 can be claimed as tax deductions, means, you can reduce upto Rs.1, 50,000 from your taxable income, and it is available for Individual and HUFs. But, the house property should not be sold within 5 years of possession. Otherwise, the deduction claimed earlier will be added back to your income in the year of sale.
Deduction on interest paid on a housing loan
Section 24(b)
nterest payable on loans borrowed for the purpose of acquisition, construction, repairs, renewal or reconstruction can be claimed as deduction.
Interest payable on a fresh loan taken to repay the original loan raised earlier for the aforesaid purposes is also admissible as a deduction.
Interest for Pre-occupation period
Pre –construction period is the period prior to the previous year in which property is acquired or construction is completed.
So, the pre-construction period interest can be claimed as a deduction over a period of 5 years in equal annual instalments commencing from the year of acquisition or completion of construction.
Interest for the period in which construction is completed/property is acquired
Interest relating to the year of completion can be fully claimed in that year irrespective of the date of completion /acquisition.
Deduction under section 80EE
This section provides additional deduction in respect of interest on loan taken by Individual for acquisition of residential house property.
Conditions to be complied with:
1. Value of House is less than or equal to Rs.50 Lakhs.
2. Loan sanctioned is less than or equal to Rs.35 Lakhs
3. Loan should be sanctioned during the previous year 2016-17
4. The assesse should not own any residential house on the date of sanction of loan.
Deduction Limit :
Maximum deduction allowed under this section is Rs. 50,000. It is over and above the deduction of Rs.2,00,000 available under section 24 for interest paid in respect of loan borrowed for acquisition of a self-occupied property.
Deduction under section 80EEA
An Individual who has taken loan for acquisition of residential house property, interest payable on such loan would qualify for deductions under this section.
Conditions to be complied with:
1. Stamp Duty Value of house is less than or equal to Rs.45 Lakhs.
2. The assesse should not own any residential house on the date of sanction of loan.
3. Loan should be sanctioned during the previous year 2019-20.
4. The Individual should not be eligible to claim deduction u/s 80EE
Deduction Limit :
Maximum deduction allowed under this section is Rs.1,50,000. It is over and above the deduction of Rs.2,00,000 available under section 24(b) for interest paid in respect of loan borrowed for acquisition of a residential house property.
In respect of self-occupied house property, interest deduction u/s 24(b) is restricted to Rs.2,00,000. In case of, let out or deemed to be let out property there is no limit u/s 24(b).
Joint Home Loan
In the case of Joint home loan, you can claim higher tax benefit, but to claim this deduction they must also be the joint-owners of the property taken on loan.
In this case, each holder can claim a deduction for home loan, means that the limit prescribed is applicable to each joint owner separately.
Please be aware that the last date to file your income tax return is 31st December 2021, do your compliance on time to get the tax benefits.