How to save tax on home loan? – Home loan tax benefit.
Having own house is a dream of almost every individual. People prefer buying a new home through home loan as it is an convenient way. The home loan comes with multiple tax benefits. Following are the home loan tax benefit and all the deduction that an individual can claim:
Tax Benefit for Interest Paid on Housing Loans:
The major two components while paying EMI for the home loan is – interest payment and principal payment. The interest part of the EMI can be claimed as deduction u/s 24 of the income tax act up to a maximum of Rs 2 lakhs. The maximum deduction on Self Occupied house for the assessment year 2016-17 is Rs 2 lakhs. For the let out property (non self occupied property) there was no upper limit for claiming interest till financial year 2016-17 but from year 2017-18, the limit is 2 lakhs.
The purpose of the loan taken should be for the purchase/construction of the new house and the construction of the house must be completed within 5 years from the end of the financial year in which the loan was taken. The deduction for the interest paid can be claimed from the year in which the construction of the house is completed.
Additional Benefit for Interest Paid on Home Loan of first time owners:
Section 80EE: This section of the Income tax Act provides additional deduction up to Rs 50,000 on interest paid on the home loan taken for first time. In order to claim this deduction, the amount of loan taken should be less than or equal to Rs 35 lakhs and the value of the property shouldn’t exceed more than Rs 50 lakhs. Further the loan must be sanctioned between 1st April 2016 to 31st March 2017, and the date on which the loan is sanctioned the individual shouldn’t own any other house. Sec 80EE has been reintroduced effective from FY 2016-17.
Deduction on Principal Payment of the Loan:
The deduction on the principal portion of the EMI is allowed u/s 80C. The maximum amount one can claim under this section is up to Rs 1.5 Lakhs. For an individual to claim this deduction one cannot sell the house within 5 years of possession otherwise the deduction claimed previously will be added back to one’s income in the year of sale of the property.
Deduction for Stamp duty and Registration charges:
The deduction can also be claimed for stamp duty and registration charges u/s 80C within the overall limit of Rs 1.5 lakhs. This can be claimed in the year in which the expenses are paid.
Tax benefit for home loan for joint owners:
The co borrowers of the self occupied property can claim deduction on interest on home loan up to Rs 2,00,000 each. The deduction on principal repayments inclusive of stamp duty and registration fees is Rs 1,50,000 for each joint owner, under section 80C of the Income Tax Act. The deductions are directly proportionate to the same ratio of the ownership of the co borrowers in the property.
If an individual paying the loan repayment is not owner / co owner meaning if the house is not registered in one’s name than one is not liable to claim any deductions for tax benefits.
Therefore, if an individual wants to claim tax benefits on the property:
- One should be the co-owner of the property.
- One should be the co-borrower for the loan.
Loan Treatment for under construction homes:
The loan treatment in case of under construction property is slightly different. The tax exemptions as mentioned above cannot be availed in case of under construction property. If you have sanctioned a home loan and have started paying EMIs than as per section 24, one can claim under construction interest from the financial year in which the construction completes. You can claim the deduction in 5 equal installments combining the whole pre construction interest but the amount shouldn’t be beyond Rs 2 lakhs .
For claiming the tax deductions as mentioned above, one is required to submit the statement provided by the lender (bank) clearly stating the principle & interest paid towards the loan. Home loan does provide many tax benefits and it is good to know them in detail, so that one can claim the right amount for tax deductions.
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