As per section 80 C an Individual and an HUF can claim principal repayment component of a loan along with other eligible items like Life Insurance Premium, NSCs, EPF, ELSS and stamp duty and registration charges etc. The overall deduction is restricted to Rs. 1 lakh in a year.
All of us know that buying a house is an expensive proposition; it really costs huge amounts going by the real estate prices. Thus, making it impossible to buy any residential house property without taking a home loan.
Home loan is such a credit facility where interest rates are cheaper and tenure is longer. Not only this, it comes with the toping of is the tax benefits which makes it even more attractive for the loan seeker.
The article dwells on the various tax benefits available in respect of home loan under the Income Tax Act. Let me tell you that your home loan servicing has two components -Interest repayment and principal repayment and both these entitle you to tax benefits, but not without fulfilling certain conditions.
Deduction available under Section 80 C for Principal repayment of home loan:
As per section 80 C an Individual and an HUF can claim principal repayment component of a loan along with other eligible items like Life Insurance Premium, NSCs, EPF, ELSS and stamp duty and registration charges etc. The overall deduction is restricted to Rs. 1 lakh in a year. Remember the deduction is only for residential house property and not for commercial property. Besides it is also available only for purchase or construction of a house and not for renovation, additions or repairs on any existing house property.
You can claim principal repayment if you have taken loan from specified entity like banks, HFCs, Central & State government, LIC, NHB, Public Company or a Public Sector Undertaking. Even a University established by law or a local authority or corporation established under State or Central laws also are covered under the category.
Moreover in case you sell the house acquired with home loan, within five years from the end of the year in which possession of the house was taken, all the deduction allowed for Principal repayment in earlier years shall be withdrawn. This shall be treated as income of the year in which this property is sold. Moreover no deduction under Section 80 C shall be allowed for principal repayment made during the year.
Deduction available under Section 24(b) for Interest payment:
In addition to deduction for Principal, Section 24(b) of the Income Tax Act allows you deduction for interest payable on loan taken to buy or construct a house property, or even for repair or reconstruction of an existing property. This benefit is available for residential and commercial property as well. It may be interesting to note that even processing fee paid in respect of home loan shall also be treated as interest so you can claim deduction in respect of processing fee paid for taking such loan. Even in cases where you prepay your loan, you will be entitled to claim the amount of any prepayment fee paid to the bank for such prepayment. Here you can claim the benefits in respect of loans taken from your friends and relatives besides banks and financial institutions.
The deduction is available for self-occupied as well as let-out properties too.
For self -occupied property, the deduction is restricted to Rs. 1.50 lakhs p.a. For let-out property, you can claim full interest. If you have more than one self- occupied houses, you have to select one house as self-occupied and the other house/s shall be treated as let-out. In this case you have to offer notional rent for taxation and can claim the full interest payable. So in order to maximize your tax benefits, it is always advisable to treat the property on which interest is lower as self-occupied in case interest payable on any or all of the property is more than Rs. 1.50 lakhs.
For under construction property, you can only claim the interest deduction from the year construction is complete and possession taken. However in respect of interest paid for the period prior to the year for taking possession, you can claim aggregate of such interest in five equal installments from the year in which construction is completed. There is no reversal of interest benefit even if you sell the house before five years as is applicable for repayment benefits.
Deduction under Section 80EE for the current year:
For this financial year an additional deduction of Rs. One Lakh for interest is available under Section 80EE. This deduction can only be claimed if the loan amount is not more than Rs. 25 lakhs and the value of house does not exceed Rs. 40 lakhs. However you should not own any other house. Here the loan should have been sanctioned during 1st April 2013 to 31st March 2014. This deduction has only limited benefit in respect of self occupied residential house property purchased with loan sanction and disbursed during financial year 2013-2014 as you are entitled to claim full interest benefit in respect of let out property.
Isn’t your home loan entitles you for some real tax benefits too!
Apnapaisa is Online marketplace for loans & investments. Author can be reached at www.facebook.com/apnapaisa.