Most people in life want to have the keys to their dream home one day. In case someone misses out to get a home of their choice in their 20’s at least they have an option to do it in their 30’s or at a later stage before it’s too late. As they say – “Home is the starting place of hope and dreams.”
One of my friends had acquired House property worth Rs 55 lakh in the outskirts of Bangalore by opting a loan from one of the Banks. But he does not know the Income Tax Benefits you can avail from a home loan. This guide will educate you on how best you can take advantage of the tax benefits with your home loan.
Today we have number of options to becoming proud owners of a beautiful home and there are many banks who offer loans to purchase the right home to make your dreams into a reality. The major attractions of home loans lie in the kind of tax benefits it gives to the individual. Almost up to 85% of the amount of the total cost of house property can be issued as a loan. The tax payer must remember to claim the extra exemptions or additional benefits in case they qualify as per the rules of the Income Tax Department (ITD).
As per Budget 2018, owners of properties that are rented can deduct interest up to Rs 2 lakh per annum after adjusting the rent earned on the housing loan. The amount above Rs 2 lakh can be carried forward for subsequent eight assessment years.
Individuals who have occupied the same house property and have taken a home loan are entitled for Rs 2 lakh deduction on interest paid on the home loan.
In case the property is sold within 3 years of purchase, an individual will have to pay the tax as per the slab rate because the profit earned on sale is considered as Capital Gains.
In case the property is not completed or acquired within 5 years from the end of the financial year in which the loan was taken, an individual can avail of the interest benefit of up to Rs 30,000.
A very important factor to be considered while taking a home loan is the tax benefit it offers to an individual. The tax benefit is governed by different sections which are claimed as deductions against relevant sections of Income Tax Act
Tax benefit on Principal amount u/s 80C – An Individual or a HUF (Hindu undivided family) can avail tax benefits on the principal repayment of the home loan.
The tax benefit on home loan u/s 80C is allowed after the completion of construction of the house and the Completion Certificate is issued to the individual. GST would be applicable in case someone wants to buy an under-construction property due to the prices being low but there is no Service Tax on fully completed properties.
Interest payment under Section 24(b) – As per this section an individual can avail a tax deduction on interest payable on a loan taken to buy or construct a house.
Here is the table below for the reference.
Deduction allowed for Payment of Interest on Home Loan as per Section 24
|Property Type||Self-Occupied Property||Not Self-Occupied Property|
|Completion Status||Completed within 5 years||Not completed within 5 years||Completed within 5 years||Not completed within 5 years|
|Deduction Allowed||Rs. 2,00,000||Rs. 30,000||Rs 2,00,000||Rs 3,00,000|
First time buyers can avail the tax benefits for both the principal and interest paid on home loan. Under Section 80C, the principal amount can be declared and of course there are also other investments like PPF, LIC, Children’s tuition fees in the same section and these shouldn’t exceed 1.5 lakhs.
Towards the interest payment, a deduction of up to RS 2 lakhs is allowed on home loan u/s 24(b) of the Act. Furthermore, a first time buyer can claim a tax deduction additionally up to 50,000 for interest paid u/s 80EE of the Income Tax Act.
An individual can get tax benefits on a second home loan on availing mortgage for construction or purchase of the 2nd house. Here out of the two properties, one is considered as self-occupied and the other a let-out property.
Joint owners are those who are also the co-borrowers along with owners of a self-occupied property, who can get tax deductions on home loan interest up to Rs 2 lakhs. And for each of the joint owners, towards the principal repayment, which includes stamp duty along with registration charges, can get an exemption of up to Rs. 1,50,000.
In case one of the co-owners is not making payments, then the one who is paying the interest and principal can get the complete tax benefits.
For an easy understanding, here is the comparison of Home Loan and its benefits as per Section 24 and Section 80C for reference.
|Particulars||Under Section 24||Under Section 80C|
|Tax Deduction applied for||Interest||Principal|
|Type of Property||Any Real Estate Property||Only Residential House Property|
|Basis of Tax Deduction||Accrual basis||Paid basis|
|Tax Deduction Allowed to the Individual||Self-Occupied Property: Rs. 2,00,000. Non- Self Occupied Property: No Limit||Rs. 1,50,000|
|Loan Purpose||Construction/ Purchase or Repair/ Reconstruction or Renewal of a Residential House Property.||Construction or Purchase of a new House Property|
|Tax Deduction Eligibility||Purchase/ Construction should be completed within 5 years||Nil|
|Sale of Property Restriction||Nil||In case property is sold within 5 years, Tax Deduction claimed would be reversed|
The owner of the property/joint owners can claim the tax benefits of a home loan
2. What are the tax benefits of a house property which is under construction?
Until the construction is complete and a certificate is issued for same, no tax benefits can be claimed by the owner. After completion, the interest paid for the under-construction period can be claim in 5 equal installments from the year in which the construction is complete.
3. Can I get tax benefits, if I plan on constructing a house and selling in few years?
In case the sale happens in less than 5 years, the tax benefits availed till date will be taken back except the tax deduction on the interest on home loan.
The key points are that the owner can claim a tax deduction of up to Rs 1,50,000 u/s 80C towards the principal repayment of home loan per annum. And up to RS 2 lakhs can be exempted u/s 24 towards the interest on home loan. And in case the property value is less than 50 lakhs and its first-time buyer, then an individual can claim income tax benefit up to 50,000 u/s 80EE for the interest paid on home loan.
Careful planning ensures, a tax payer reaps the tax benefits from Home Loans. The experts at H&R Block India can assist you in maximizing your tax planning/saving when filing your income tax returns