For a middle-class segment buying home is one of the biggest dreams. The cost involves to fulfil this is high. Most people take Home Loan to arrange the money for the purchase of house. Home buyer needs to bring in own contribution from his savings, thereby exhausting all his savings and rest is paid by loan. With EMIs which would be recurring and heavy expenses, the monthly disposal income reduces. If Home Loan borrower is burden with high tax payment obligation, it becomes quite difficult to manage monthly expenses. Deduction of Loan amount principal and Interest paid in a financial year from taxable income component, help in reducing the tax obligation. Normal individual gets benefit upto Rs. 350,000 and additional benefit from PMAY or other government schemes if applicable.
Government promotes and encourages individual to save on rent and have their own home. Various scheme and benefits are provided to home buyer. One of such benefit is reduction in Income tax payable. Certain extent of principal amount paid and Interest paid in a financial year, both attract benefits and help reduce taxable income.
Home Loan Tax Benefits Checklist
On Principal Amount
- For Self-Occupied property - Under Section 80 C of IT Act: Actual paid or max of Rs. 1,50,000 deduction can be availed by an individual.
For Senior Citizens: limit increases to Rs. 2,00,000.
- For Rented or Vacant (Vacant property will be deemed to be let out property) - Under Section 80 C of IT Act: Actual paid or max of Rs. 1,50,000 deduction can be availed. For Senior Citizens, limit increases to Rs. 2,00,000
- Second Home or Additional Property - No tax benefits
- Under Construction - No tax benefits
On Interest Amount
- For Self-Occupied property - Under Section 24 of IT Act: Actual interest paid or max upto Rs. 2,00,000 deduction, construction to be completed within 5 years. For Senior Citizens, limit increases to Rs. 3,00,000. In case construction delayed above 5 years, then tax benefit available is Rs. 30,000
Under Section 80EEA of IT Act: If loan taken between 01.04.2019 to 31.03.2021 and for affordable house upto 45 lakh, then additional tax benefit of Rs. 1,50,000 can be availed
Under Section 80EE of IT Act: Affordable house upto 50 lakh and loan taken less than 35 lakh, then additional tax benefit of 50,000 can be availed and is effective from FY 2016-17
- For Rented or Vacant (Vacant property will be deemed to be let out property) - Under Section 24 of IT Act: You can avail exemption on actual interest paid and no maximum cap / limit on benefit
(In case of rent-out properties max benefit under house property head is restricted to Rs. 2,00,000)
- Second Home or Additional Property - You can avail exemption on actual interest paid and no maximum cap / limit on benefit.
- Under Construction - Tax benefit of Rs. 200,000 if construction completed within 5 years, otherwise only Rs. 30,000 is deductible.
Home Loan Takeaways
- HRA can be claimed along with home loan tax benefit, if you stay in another rental house
- Owner & Co-borrower both can claim up to ₹ 1.5 lakh each as principal deduction
- You can also claim the stamp duty & registration fees charges under sec 80C
- If property sold within 5 yrs of possession, all benefits gets reversed & added to income