Although beneficial in purchasing a hose, home loans are an expensive affair. Nevertheless, there are benefits one can enjoy benefits associated with obtaining a mortgage. Home loan tax benefits are one of the upsides of a housing loan. Tax rebates can be availed on a housing loan which will reduce an individual’s tax burden, which will in turn reduce the burden on the housing loan.
Based on the current rules, owners of properties that are rented out can deduct up to Rs.2 lakh p.a. on the housing loan after adjusting the rent earned. Any amount over and above Rs.2 lakh can be carried forward for eight assessment years.
Individuals who have availed a housing loan and have occupied the same property are entitled to deduct up to Rs.2 lakh on interest paid towards the home loan.
Also, if a property is sold within 3 years of purchase, the profit earned from the transaction will be considered as a capital gain and will be taxed as per the slab he/she falls under.
Home loans are eligible for tax benefits under three sections of the Income Tax Act. Your home loan consists of two components: Principal and Interest. You may be eligible to claim tax benefits for these components based on certain criteria. Firstly, you must be the owner, or a co-owner and co-borrower in the case of joint home loans.
Principal amount under Section 80 C - An Individual or a HUF (Hindu undivided family) can claim tax benefits on the principal repayment of a loan.
Interest payment under Section 24(b) – it allows for tax deduction on interest payable on a loan taken to buy or construct a house.
Deduction for Joint Home Loan - If the housing loan is availed by two or more persons, each of them is eligible to claim a deduction on the interest paid up to Rs.2lakh each. Tax can be deducted on the principal paid as well for an amount up to to Rs.1.5 lakhs each. However, all the applicants should also be co-owners of the property in order to claim this deduction. Therefore, a joint loan can give you greater tax benefits.
|Home Loan Tax Deduction Details|
|Principal||80c||Rs.1.5 lakh||Property should not be sold within 5 years of purchase|
|Interest||24b||Rs.2 lakh||Loan must be availed for purchase or construction and the property must be constructed with 5 years of availing the loan|
|Interest||80e||Rs.50,000||Loan amount should not exceed Rs.35 lakh and the property value should not exceed Rs.50 lakh|
|Stamp duty||80c||Rs.1.5 lakh||This benefit can be availed only on the year that the stamp duty expenses are paid|
You can avail the tax benefits on home loan for both the principal and interest paid. Principal repayment qualifies for tax deduction under section 80C of the Income-tax Act, 1961. However, other things such as life insurance premiums, investment in Public Provident Fund, and children’s education fee that qualify for deduction under the same section. All of these should not exceed Rs.1.5 lakh. Apart from principal repayment, you can claim deduction of up to Rs2 lakh for interest payment on home loans under section 24(b) of the Act.
However, if you are a first-time homebuyer, you can claim additional tax deduction of up to Rs50,000 per financial year under section 80EE of the Act, provided you fulfil certain conditions.
One is eligible for tax rebates on home loans on availing a mortgage for purchasing or building a second home. In this case, one property will be regarded as a self-occupied property, while the other will be considered a let-out property. One is eligible for tax benefits on home loan in both these cases.
Claiming tax benefits on home loan is a simple process. Below are the steps to claim your tax deduction.
Step1: Calculate the tax deduction to be claimed.
Step2: Ensure that the house is in your name or you are the co-borrower of the loan.
Step3: Submit your home loan interest certificate to your employer to adjust the tax deductible at source.
Step4: In case you don’t perform the above step, you would have to file the tax return by yourself.
Step5: In case you are self-employed, you are not required to submit these documents anywhere. Just keep them handy if in case the IT department raises queries in the future.
The easiest way to calculate your tax benefits on home loan is by using an online calculator. Simply enter your home loan details and click on calculate and a detailed tabulation will pop up. The details you will generally need are:
If you sell the property within 5 years of possession, any tax deductions already claimed will be reversed. However the tax exemptions on interest paid will remain unchanged.
The owner of the property can claim tax benefits. If the spouse is a co-borrower, they can also file for tax deductions. In the case of a joint loan, both parties can claim for their share of the loan they pay.
You cannot claim tax deductions till the construction is completed. Once it is completed, you can claim an aggregate of interest paid for the period prior to the year of taking possession. This can be claimed in five equal instalments from the year in which construction is completed.
You can claim for tax deduction under Section 24(b) only for the interest paid. The friend will have to provide you with a certificate and will be liable to pay tax on the interest earned from the loan.
Generally, tax benefits can be availed only on the house claimed as self-occupied. In case if you own two houses, only one of them can be claimed as self-occupied property. The other house will be considered as a let-out property and will be taxed as per the tax slab applicable. The notional rent on your second house will be added to your income. To save on the applicable tax, one can consider investing the second house in his/her spouse’s name. However, only one residential property can be relieved from being taxed. You will have to pay wealth tax on the second home.
Yes, you can claim separate deductions in your IT returns if your spouse is employed and has a different source of income. You can both claim deduction under Section 80C up to Rs.1.50 lakh from your total income. If the house is jointly owned, each co-owner can claim deductions up to Rs.2 lakh on account of the interest on borrowed money. However, if the house is being rented, there is no restriction on the claiming amount and you can individually claim deductions based on the ratio of possession on the property.
Yes, home loan principal is part of Section 80C of the Income Tax Act. Under this section, an individual is entitled to tax deductions on the amount paid as repayment of the principal component on the housing loan. An amount up to Rs.1.50 lakh can be claimed as tax deductions under Section 80C. However, the tax benefit on the repayment of the principal amount can be claimed only after the house is constructed. The section does not allow deductions for the repayment of the principal part during the years the house was being constructed.
An individual is entitled to the following benefits if he/she is staying in a rented place after buying a home loan:
The Housing Rent Allowance benefit stops once the construction of the property is complete. You can avail all tax benefits on the housing loan only if the construction of property has been completed and is ready to move in during the same financial year. You can still claim tax benefits if you are living in a rented accommodation after giving your house on rent. However, the rent you receive on the property will be added to your taxable income and will be taxed as per the applicable tax slab.
No, self-employed individuals cannot claim Housing Rent Allowance (HRA) benefit. However, you can save tax on the house rent paid under Section 80GG of the Income Tax Act, provided the rent has not been claimed under another section of the IT Act.
You can also claim tax deductions in respect of the interest on the housing loan under Section 80EE of the Income Tax Act. Under this section, an individual is entitled to claim tax deductions up to a maximum amount of Rs.50,000 during a financial year. The deductions, however, cannot be claimed if you have repaid the entire home loan. You can claim tax benefits under Section 80EE if you haven’t purchased a house before. The value of the house should not exceed Rs.50 lakh and the home loan taken for the property should be less than Rs.35 lakh to avail this benefit.
Yes, you can avail tax benefits on the principal amount repaid on the home loan from total income under Section 80C. However, you can only claim tax deductions up to a maximum amount of Rs.1.50 lakh under this section.
Under Section 24 of the Income Tax Act, an individual can claim tax deduction of the interest payment on the housing loan up to a maximum amount of Rs.2,00,000. However, there is no limit on the interest payment deduction of the property is rented.
Under Section 80C of the Income Tax Act, an individual and HUF can also claim tax deductions on the repayment of home loans. If the spouse is working and has another source of income, the repayment on the housing loan can be claimed by both of them, if they are joint owners of the property. There is no tax applicable on a property for self-occupation. If the person owns two properties, the owner will have to provide notional rent on the other property. However, if the spouse is earning, the property can be registered under his/her name and can be considered as self-occupied property. This can help the couple take benefit of the tax laws to minimise total tax liability.
5 September 2018
Taxability in India depends on the following three factors:
Residential status in India can be further categorised into three parts - Ordinarily Resident (OR), Not Ordinarily Resident (NOR) and Non-Resident. Irrespective of the category of the residential status, a person can enjoy home loan tax benefits on the interest and principal components. The maximum tax deduction on the interest component is Rs.2 lakh while the same on the principal component is up to Rs.1.5 lakh.
27 March 2018
In the upcoming budget of 2018, increase in tax bracket under Section 80C is required to be incorporated by the government for the following reasons:
29 January 2018
Now, most of us already know that purchasing a home requires you to pay a number of taxes. But, for some people this has been a little unclear.
As per the tax authorities, the taxes that need to be paid are as follows:
Once after paying these charges will a property be registered by the government.
18 April 2017
Tax benefits have been cut down by the Government. According to the new tax laws, the borrower can deduct the whole loan amount after the rent has been adjusted. Borrowers of the self-occupied properties can avail a deduction of Rs.2 lakh on home loan interest repayment.
The amount that is beyond Rs.2 lakh can be carried forward to eight consecutive assessment years. As the interest component of the HL is higher during the initial years, financial experts state that borrowers might not be able to adjust the deduction with the interest paid.
4 April 2017
After the announcement on the New Year’s evening about changes to the home loan policy, Prime Minister Narendra Modi had also announced Pradhan Mantri Awas Yojana that offers subsidy on interest rates for home loans. The government is also going to cut down tax benefits that borrowers availed on properties let out on rent. With effect from 1st of April, the interest paid above Rs.2 lakh can be carried forward for next eight assessment years. There are many more Income Tax rules that are introduced for the reality sector. With the implement ant of Credit Linked Subsidy Scheme for Middle Income Group (MIG), it will interest to see the improvement of realty sector in India.
3 April 2017
Individuals who avail a home loan with the intention of going ahead and purchasing a home can make the most of a number of tax benefits. The most common tax benefits associated with availing a home loan include deductions under Section 80C of the Income Tax Act, wherein individuals can claim up to Rs.1.5 lakhs as deduction on repayment of the principal amount borrowed.
The next benefit that can be availed by purchasing a home after taking a home loan is deductions under Section 24 of the Income Tax Act, where in a tax deduction can be claimed to the extent of Rs.2 lakhs on the interest component related to the repayment of the home loan. Such a benefit can be claimed provided the borrower and his/her family live in the property or in case the property has been left vacant. But if the property were rented out, deductions can be claimed on the whole interest component. In case an individual has availed a home loan together with a member of the family, both individuals are eligible to claim deductions on the interest component, subject to a maximum of Rs.2 lakhs per individual.
Another tax benefit associated with availing a home loan to purchase a home is deductions under Section 80EE of the Income Tax Act, wherein individuals who are purchasing a home for the very first time are eligible for tax deduction in case the value of the home loan is under Rs.25 lakhs, and the value of the property is under Rs.40 lakhs. Moreover, individuals who purchase a home for the first time have no requirement that compels them to occupy the property themselves if they wish to make the most of the aforementioned deduction.
5 March 2017
The Union Budget 2017 will be presented on the 1st of February, 2017. The real estate market in India is expecting positive changes to rise against the demonetization situation that impacted the entire nation's economy. The Reality is expecting the government to increase the tax deduction limit on home loans that will welcome borrowers to come forward in buying a house. The announce of 'Housing for all by 2022' has made the real estate market more interesting, considering that fact various schemes have been introduced to promote housing, the real estate market has a lot to look forward to from the Budget 2017.
30 January 2017
The 2017 Union Budget is expected to be presented on February 1st. According to a report by CNBC-TV18, the budget is expected to be taxpayer-friendly to balance the cash shortage brought about by the demonetisation of high-value notes last November. The budget is expected to be centered on agriculture, MSME and housing sectors to balance the impact of demonetisation. According to a study by All India Manufacturers Organisation, there has been a 35% job loss and 50% revenue decline in the small scale industries post demonetisation. An increase in tax rebates on home loans will help the banking sector and the sluggish real estate market.
16 January 2017
The Income Tax Act provides for deductions in respect to home loan interest rates and principal under Section 24(B) and Section 80(EE). Section 24(B) of the Income Tax Act provides for a tax deduction on interest paid for Home Loans. Interest on Home Loan is permitted as a tax deduction on accrual basis and not on a paid basis, even if the books of accounts are maintained on cash basis. The tax deduction on the interest on home loan can be claimed only if the capital amount borrowed has been utilized for construction, purchase, renovation, repair or reconstruction of a commercial or residential property. Under this definition interest includes service charges, commission, brokerage, prepayment charges, etc. A deduction will not be provided for penalty on unpaid interest. A deduction will be provided for both personal loans as well as home loans taken from any institution or person. If a person pays the sale price of the property to the seller in instalments with interest and does not raise the funds from a third party, the interest paid by him/her is also a permitted deduction. Interest on money borrowed which is payable outside India is not permitted as a deduction under Section 24(B), unless the tax on the same has been paid or deducted at source to in respect of which there is no person in India who may be treated as the recipient for such purpose. For claiming a deduction under Section 24(B) the assesse should be the owner or deemed owner of the property and the loan should be in the assesse’s name. The maximum deduction provided for self-occupied property is Rs.2 lakh and there is no limit of deduction for let-out property. Under Section 80(EE) of the Income Tax Act, persons who are first-time homebuyers can claim a further deduction of a maximum of Rs.1.5 lakhs if the loan is sanctioned by a financial institution between April 1st, 2017 and March 31st, 2017 and does not exceed Rs.35 lakhs. The value of the residential property should not exceed Rs.50 lakhs to be eligible for deductions under Section 80(EE). Please note that an individual may only claim tax deductions under either Section 24(B) or Section 80(EE), not both.
11 January 2017