Home Loan: Full details of all Income tax Benefits available to you

Home Loan Income Tax Benefits: According to regulations of the Income Tax Act of 1961, obtaining a house loan can provide chances to reduce taxes. Although getting a home loan can be expensive, there are a number of tax exemptions that can help you save money each year. It’s important to know how to utilize these benefits. Any home loan consists of –

• Principal Amount
• Interest Amount

Various exemptions and deductions are provided in the Income Tax Act to an assessee on repayment of Principal or Interest Amount. Here are 5 ways of Home Loan Income Tax Benefits available to anyone:

1. Benefits on repayment of Principal Amount (Section 80C)

1. Repayment of principal amount on actual payment basis is allowed as deduction if all of the following conditions are fulfilled-

• A loan was taken from Notified Organization or Specified Employer.
• A loan is taken for purchase or construction of the residential house.
• House is used for residential purposes of whether by the assessee or a tenant.

2. Maximum deduction under this section is Rs 1,50,000.

3. House which is purchased or constructed must not be transferred or sold before the end of 5 financial years. If transferred before 5 financial years all deduction taken in previous years will be reversed.

4. Actual payment for repayment has been done.

Read Also: Income tax on Agriculture Income with examples

2. Benefits on repayment of home loan Interest (Section 24(b))

• Interest payable on the loan for construction, purchase, repairs, renovation, or any alteration is allowed as a deduction from Net Annual Value of House Property.

• This deduction can be claimed on Accrual Basis.

• Interest is calculated by the Simple Interest method.

• Current period Interest is fully allowed as deduction.

Prior period Interest (Section 24b)

• Interest on the amount for the prior-period to completion of construction or purchase of a property is also allowed.

• Starting from the date the loan is taken and Ending on the last day of the preceding financial year in which construction is completed or purchase is made.

• Prior Period Interest is allowed as a deduction in 5 equal instalments starting from the year in which purchase made or construction is completed.

• If a loan is taken from outside India- Interest is allowed as deduction only when TDS compliance are properly fulfilled while making the payment or foreign lender has an agent in India.

Read Also: NPS Tier II Tax Saver Scheme 2020 – Benefits

House property used by an assessee on own is known as self – occupied.

• If House property is self-occupied only Rs 30,000 is allowed as a deduction under the section including prior period interest.

• The limit of 30,000 extends to 2,00,000 if these conditions are fulfilled-

1. A loan is taken after 1-4-1999
2. A loan is taken for purchase or construction
3. House constructed or purchased within 5 years of loan taken.

House property given on rent to other person is known as Let Out

• In this case, there is no limit on the maximum amount as a deduction.

Read Also: Books of Accounts -Section 44AA of Income Tax Act, 1961

3. Additional Deduction on housing loan (Section 80EE)

• In the financial year 2016-2017, to increase the sales of affordable housing and to fulfill dreams of peoples to own a house, the government introduced this provision.

• As per this provision, deduction is available to an individual resident or non-resident, maximum of Rs 50,000 interest amount paid. This is over and above Rs 2 lakhs limit under section 24 of the income tax act.

• Following conditions must be fulfilled to avail this deduction-

1. A loan was taken from a bank or housing finance company.
2. A loan is taken for purchase or construction of house property.
3. The loan must be sanctioned between 1-4-16 and 31-3-17
4. Loan amount must not exceed Rs 35 lakhs.
5. The value of the property must not exceed Rs. 50 lakhs. (sale or purchase price)
6. The assessee must not own any other residential house on the date of sanction of loan.

Read Also: Tax on Interest Income – Saving Account, PPF, Fixed Deposits, bonds, R/D

4. Additional Deduction on Home loan (Section 80EEA)

• Once again in the financial year 2019-2020, to increase the sales of affordable housing and to fulfill dreams of peoples to own house, the government introduced this provision very similar to section 80 EE. Under the objective “Housing for all”, the government extended the interest deduction allowed for low-cost housing loans taken during the period between 1 April 2019 and 31 March 2023.

• As per the provision, the deduction is available to an individual resident or non-resident, maximum Rs 1,50,000 interest amount paid. This is over and above Rs 2 lakhs limit under section 24 of the income tax act.

• Following conditions must be fulfilled to avail this deduction-

1. Individual must not eligible for deduction in section 80EE
2. A loan was taken from a bank or housing finance company.
3. A loan is taken for purchase or construction of house property.
4. The loan must be sanctioned between 01-04-19 and 31-03-22.
5. Stamp Duty Value of the property must not exceed Rs. 45 lakhs.
6. The assessee must not own any other residential house on the date of sanction of loan.

5. Deduction for Stamp Duty and registration charges (Section 80C)

• Income tax benefits are also available on stamp duty, registration charges and other expenses which are directly related to the transfer of the property, which were paid during purchase of the house property.

• However, these charges can be claimed within the overall limit of Rs 1.5 lakh under section 80C.
• Important thing is that such deduction can only be claimed in the year in which these expenses have incurred.

Also Read: Income Tax Audit limit for AY 2023-24]

Who can claim Home Loan Income Tax Benefits?

The owners of the property can claim tax deduction on home loans. If the home loan is taken jointly with a spouse, each borrower can claim deduction on home loan interest in the ratio of their ownership.

Also Read: Income Tax Notices issued due to errors and wrong details found in many ITR

How to claim tax benefits on home loan?

⦁ Keep the documents ready, such as ownership documents, loan details, certificate from the bank with the interest
⦁ Calculate the income from house property.
⦁ File your ITR to claim deduction on interest on home loan and principal repayment.
Or for easy process contact team Babatax

Read Also: Other Loans: Income Tax on loan -check all tax benefits available

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