Income tax Act gives deductions from total income for housing loan repayments separately
for interest and principle repayment component. Housing loan is a very commonly
availed loan and it takes away a big portion of your income. Income tax Act therefore
offers a huge tax benefit for home loan repayments.
The interest portion can be claimed as a deduction u/s 24 up to a maximum of Rs. 2
lakhs for self-occupied property. In case the property is not self-occupied then
there is no limit on amount of deduction. Interest deduction comes down to only
Rs. 30,000 if the construction of the house property for which the loan is taken does
not get complete within three years of Financial Year in which loan was taken.
Section 24 explicitly states that interest on loan can be claimed as a deduction
only after the construction of property is complete. Interest deduction for pre-construction
period can be claimed once the construction is complete. The entire interest amount
for the pre-construction period can be divided into 5 equal instalments and claimed
equally over a period of five years.
The principle amount can be claimed u/s 80C subject to the overall limit of Rs. 1,50,000.
Deduction u/s 80EE
In the Budget 2013 an additional deduction of Rs1 lakhs was announced by the then
finance minister Mr P Chidambram. The deduction was given in addition to the existing
deduction u/s 24 and u/s 80C. The deduction can be claimed provided
1. The loan is sanctioned between 01/04/2013 and 31/03/2014
2. The buyer does not possess any other house property on the date of purchase
3. The value of house property does not exceed Rs. 40,00,000
4. The loan amount does not exceed Rs. 25,00,000
5. The deduction of Rs. 1,00,000 can be claimed only in FY 2013-14
If the deduction of Rs. 1,00,000 is not claimed in FY 2013-14 then the remaining deduction
can be claimed in later years up to a maximum of Rs. 1,00,000.