A home that you can call yours is a dream and a necessity for everyone. However nowadays it is not possible to achieve that without a home loan. But often, you feel skeptical about opting for a home loan to turn this dream into a reality. It may sound like a daunting step to take but there are tax benefits on home loan. Let us simplify how simple an advancement it is towards achieving what you have dreamed of, only by keeping a few things in mind. We have talked about the documents and other requirements for a home loan earlier. Now let us discuss the tax benefits on home loan.

→ Deduction for Interest Paid on Home Loan

If you are taking a home loan, keep in mind that the purchase and construction of the house should be completed within 5 years. The starting period should be calculated from the end of the financial year in which you have taken the loan. If you are paying an EMI for housing loan as well, you are entitled to claiming it back.

An EMI has two components – interest payment and principal repayment. The interest payments part of a home loan EMI can be claimed as a deduction from your total income. This sum can amount to a maximum of Rs. 2 lakhs under Section 24 of the Income-Tax Act. Yes, for the uninitiated; since Assessment Year (AY) 2018-19, the maximum deduction for interest paid on the Self-Occupied House property is Rs. 2 Lakh. Also, for Let Out/Rental properties, there is no upper limit for claiming interest. However, the overall loss one can claim under this category is restricted to Rs 2 lakh. This deduction can be claimed from the year in which the construction of the house is completed.

→ Tax Benefits on Interest Paid During Pre-Construction Period

Let us say that you have bought an under-construction property and have not moved in yet, but you are paying the EMIs nevertheless. In this case, your eligibility to claim interest on the home loan as a deduction begins only upon completion of construction, or immediately, if you buy a fully constructed property. However, that does raise a question!

Will you be able to enjoy any tax benefits on home loan interest paid during the period of the sanctioning of the loan and the completion of construction? Well, unfortunately, the answer is NO!

Let us understand the rationale behind it. According to income tax law, one can claim for another kind of interest called the pre-construction interest in such a situation. This will then acquire as a deduction in five equal installments starting from the year in which the property was acquired or when the construction is completed.  Over and above, the deduction you are otherwise eligible to claim from your house property income can be balanced here. But again, the maximum eligibility remains capped at Rs. 2 lakhs.

→ Deduction on Principal Repayment

The Principal repayment portion of the EMI paid for the year is permitted as a deduction under Section 80C of the Income-tax act law. The maximum amount that can be claimed under this condition is up to Rs 1.50 Lakhs. But to claim this deduction, you must make sure that the house property is NOT sold within 5 years of possession. If you do sell the house before the said period, then the deductions claimed by you earlier will be added back to your income in the year of sale.

→ Tax Benefits on Home Loan For Stamp Duty and Registration Charges

Besides claiming the deduction for principal repayment, you can also claim a deduction for stamp duty and registration charges under section 80C of the Income tax act, but again, within the overall limit of Rs 1.50 Lakhs. One important thing to keep in mind is that this deduction can be claimed in the SAME year in which these expenses have been incurred.

→ Additional Tax Benefit on Home Loan Under Section 80EE

Additional deduction under Section 80EE of the Income tax act is allowed for home buyers for maximum up to Rs 50 Thousand. The criteria to claim this deduction is that the amount of the loan taken should sum up to Rs 35 lakh or less and the value of the property should not exceed Rs 50 Lakhs. The loan must be sanctioned between the first day of the financial year (FY) till the last day of the same FY. Also, on the date of sanction of the loan, an individual should not own any other house in his name. Section 80EE has been reintroduced effective from FY 2016-17. Earlier the deductions allowed under Sec 80EE were available for 2 years FY 2013-14 and FY 2014-15 only.

→ Additional Deduction Under Section 80EEA

The budget of 2019 introduced an additional tax benefit on home loan under Section 80EEA. The deduction amount is a maximum of Rs 1.50 Lakhs. To claim this deduction, the stamp value of the property should not exceed Rs 45 Lakhs. The loan must have been sanctioned between 1 April 2019 to 31 March 2020. And on the date of sanction of loan, individuals should not own any other houses.

→ Deduction for Joint Home Loan

If home loan is taken jointly by you and another person, then each of the loan holders can claim a deduction for home loan interest up to Rs 2 Lakhs per person. The principal repayment under Section 80C of Income-tax act should sum up to Rs 1.50 Lakhs each in their individual tax returns. To claim this deduction, they should also be co-owners of the property taken using the loan amount. Effectively, loans taken jointly with your family members can help you claim a larger tax benefit.

Now that you know the tax benefits on home loan, we think it will be even easier for you to decide upon buying your new dream home. Keep all these points in mind and confidently get a loan hassle-free, with tax benefits.

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