Tax deductions can be claimed on the interest of the home loans for an amount of up to Rs.2 lakh, whether the family is living in the property or not. The deduction is Rs.30,000 if the loan is taken for renewal or repair.
Taking out a home loan can help you save on tax. You can claim deductions under different sections of the Income Tax Act, 1961, which apply for different parts of the expenses you incur on the loan.
Section 24 – Tax Deductions on Home Loan Interest
- Deduction amount:A deduction can be claimed on the home loan interest for an amount up to Rs.2,00,000 – if the homeowner or his / her family resides in the house property in question, and even if the house is vacant.
Deduction eligibility:In case the owner does not meet any of the following criteria, the maximum deduction will be capped at Rs.30,000:
- The loan must have been taken on, or after the 1st of April, 1999.
- The purchase / construction of the house property must have been completed in full within a period of 3 years from the end of the financial year in which the loan was taken.
- The home loan must be taken for the specific purpose of purchase and construction of a new house property
- Loan purpose:If the loan has been taken for reconstruction, renewal, or repair, only Rs.30,000 can be claimed as deduction.
- Rent:If the house property has been rented out, all the interest on the home loan is allowed as a deduction.
Stage of construction:Deductions cannot be claimed when the house property is still under construction.
- Deductions can only be claimed starting in the financial year in which the construction of the property has been completed.
- Pre-construction period:The time period between when you take out the home loan right up to the when the construction is finished is called the pre-construction period. Interest paid on the home loan during the pre-construction period can be claimed as 5 equal deduction instalments starting in the financial year in which the property was completely constructed.
Section 80C – Tax Deductions on Principal Repayment
- Deduction amount:When claiming principal repayment deductions, Rs.1,50,000 is the maximum limit – under the overall limit of the various Section 80C deductions that are available.
Deduction eligibility: For this deduction to be made, the claimant must satisfy the following eligibility criteria:
- The purpose of the home loan must be for the purchase or construction of a new house property.
- From the date of possession, the property should not be sold for a minimum of 5 years.
- If the property has been sold within 5 years from the date of possession, the deductions will be added back to your income in the year of sale.
Charges:Under Section 80C, claims for a maximum deduction amount of up to Rs.1,50,000 can be made also for and including the charges for:
- Stamp duty.
- Transfer related expenses
Section 80EE – Tax Deductions for first-time Home Owners
- Deduction amount:A total deduction amount of Rs.1,00,000 can be claimed under Section 80EE, but this only applies for first-time homeowners.
Deduction eligibility: In order to make a claim under Section 80EE, the claimant must meet the following criteria:
- Must be a first-time home owner.
- The total value of the home loan must not be more than Rs.25,00,000.
- The total value of the property must not be more than Rs.40,00,000.
- The loan should have been sanctioned any time between the 1st of April, 2013 and the 31st of March, 2014.
- Claimant cannot own any other house property on the date of loan sanctioning.
- This amount under Section 80EE can be claimed by resident Indians and NRIs as well.
- This deduction can be claimed over FY2013-14, and FY2014-15.
How to claim Tax Deductions on Home Loans?
If you’re a salaried employee, you need to submit the home loan interest certificate to the company that employs you, and instruct them to adjust the tax deductions as necessary. The home loan interest certificate is a document that has information relating to your EMI interest and principal components, borrower details, and ownership share.
If you’re self-employed, just calculate your quarterly liability for advance tax. It’s very beneficial to do this and keep your documents on hand in case questions arise from the Income Tax Department.
Tax Deductions on Home Loans in the case of joint owners of Property
If you jointly own a property with, say, your spouse, after jointly applying for a home loan, you can claim deductions on interest under Section 24 for up to Rs.2,00,000 each.
Under Section 80C for Principal component repayment and deductions on the same, each co-applicant can claim up to Rs.1,50,000. Bear in mind that this is the total Section 80C deduction, including all other deductions, if any, claimed under this Section.
The important points to note here are:
- Deductions can only be claimed in the same ratio as that of the shares of ownership in the house property.
- If the loan has been applied for jointly, but there is no joint ownership of property, there are no income tax deductions that can be claimed by you.
- All income tax deductions can only be claimed once the property has been fully constructed.
- In case the co-borrower does not contribute to EMI payments, the entire interest can be claimed as a deduction in the Income Tax Return by the one paying off the EMI.
FAQs On Home loan tax benefits
- Is home loan covered under 80C?
- How can tax charged on home loan be reduced?
- Can we claim both HRA and interest on home loan?
- How much is the maximum tax deductible for a home loan?
Under section 80C, a deduction of Rs.1.5 lakh can be claimed for the repayment of the home loan’s principal amount, where loan is taken for the construction or purchase of a new house only.
In case the loan is taken jointly and the loan holders are also co-owners of the property in question, each holder can claim deductions up to Rs.1.5 lakh under Section 80C on the principal amount.
The homeowners who are getting HRA as part of their salary and are paying back home loan can claim both.
The maximum tax deductible for a home loan is as follows:
- Up to Rs.1.5 lakh under section 80C of Income Tax Act.
- Up to Rs. 1.5 lakh under section 80EEA for first time home owners.
- Up to Rs.2 lakh under section 24 for self-occupied houses.
The tax deductions on home loan top-up can be availed only in case of:
- Construction/acquisition of a residential property.
- Repair/renovation of such property.
Yes, home loan tax-benefits be claimed on under-construction property if:
- A deduction of Rs.2 lakh is applicable if the construction is completed within five years.
- A deduction of only up to Rs.30,000 is applicable if the construction is not completed within five years.