Buying a house financed from a home loan has immense benefits. One way you acquire a property and the other way you can get tax benefits on the loan. Government extends various tax aids on the home loan under Sections 80C, 80EE and 24. Here are the details on how you can get benefited with the help of a home loan.
There are various categories under which one can own house and avail tax benefits which are as follows:
Home loan repayment in the form of easy monthly instalment– when the home loan is taken for the construction or acquisition of the house and not for the purpose of repair, renewal and reconstruction and the repayment and the loan repayment is made under EMI plan, the principal and interest both can be claimed for tax deductions.
- Under section 24 of the Income-tax Act, the interest amounting up to Rs. 2 lakhs or the actual amount paid can be claimed for deduction, if the house is under possession. Processing fees, pre-payment charges and service fees all are qualified for deductions under section 24.
- Under Section 80C of the Income-tax Act, principal repayment subject to a maximum of Rs. 1.5 lakh can also be claimed for deduction. Along with this deduction can also be claimed for Stamp duty and registration charges in the year of payment under this section. An important thing to consider here is all deductions under 80C are subject to a maximum of Rs. 1.5 lakh (which also include deductions on PPF, NSC, FD and other saving schemes applicable under section 80C)
- Under Section 24, the interest paid in the financial year afore the possession of house can be claimed as a tax deduction in 5 equal instalments for the next 5 consecutive years from the year that one gets the possession of the house.
However, if the construction of the house is not complete in the span of 3 years from the end of the financial year in which the loan was taken, claims amounting to Rs.30 thousand per financial year are eligible for deduction under Section 24. The time limit has now been increased to 5 years.
The house bought is let-out or a second property- in case the house under the home loan is let out no deduction is granted of principal repayment. However, the interest paid on the loan is a tax-deductible expense. While calculating income from house property the interest paid is deducted from rent income. In a let out property repairs and maintenance expenses are eligible for a deduction of 30%. Another benefit that can be claimed is of HRA. If one stays in a rented house and the owned property is let out HRA can be claimed. The catch is you should not be staying in the same building where the property is let out.
The house is for personal use and co-owned by two or more persons. If a joint loan is taken by husband and wife both can claim separate deductions during return filing.
- Under Section 80C, the individual amount both can claim is subject to a maximum of Rs. 1.5 lakh.
- Under Section 24, if the house is used for self the interest paid on loan is entitled to a deduction up to Rs.2 lakh
Other benefits
- Under section 80C, a home loan insurance cover premium accompanied with a home loan is eligible for a tax deduction.
- Under section 24 if one has two home loans or numerous loans, tax benefits can be availed. Nevertheless, the principal repayment has a cap of Rs. 1.5 lakh. The interest repayment has a ceiling of Rs 2 lakh.
- Under Section 24 if the home loan is taken from a Friend or from a Family Member, the repayment cannot be claimed for deductions under Section 80C. Nevertheless, interest payment under Section 24 is tax deductible on furnishing a certificate from the friend or your family member of interest is payment.
- Under a new Section 80EE, a first-time buyer taking a loan from Financial Institution or a Housing Finance Company for the ‘Residential House Property’ can avail additional tax benefit of Rs.50 thousand. The tax benefit is available only to the first-time buyers. The value of the house should not exceed Rs.50 lakhs and the loan amount should not exceed Rs.35 lakhs. If you are fulfilling the conditions of both the sections i.e. Section 24 and Section 80EE, both the benefits are applicable. First, the exemption under section 24 can be availed and then supplementary benefits under section 80EE claimed. Therefore, this deduction is in addition to Rs 2 lakhs limit under section 24.