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To claim this deduction, you should not own any other house property on the date of the sanction of a loan from a financial institution. Under section 80C the borrower enjoys the home loan principal repayment tax benefits. The maximum deduction under section 80C for the borrowers is available for up-to Rs.1.5 Lakhs per year. To claim the home loan tax benefits under the two sections, the owner/co-owners of the property must also be the joint borrower/co-borrower to the housing loan.
Any individual who has purchased a new property with a home loan can claim tax rebates under Section 80C, 24, 80EEA, 80EE of the Income Tax Act. Also, borrowers with a joint loan who are also co-owners of a property can claim tax rebates on housing credit. Individuals cannot claim tax benefits on home loan repayment till their property is fully constructed. However, that does not mean one cannot claim any tax benefit for the period of property construction. Taking a joint home loan by two or more applicants also has tax benefits.
How to Claim Tax Benefits for Home Loan Repayment?
Each individual can claim a deduction on the interest portion upto INR 2 lakh and upto 1.5 lakh on the principal amount from their gross income. When financing an under-construction property, remember that your tax deductions are limited to Section 24B only. Interest that you pay before completion is aggregated and allowed as a deduction in 5 equal instalments over a period of 5 successive financial years. This begins from the year in which you take possession of the house or the year of completion. This calculator is an indicative tool to check Home Loan tax benefits and assist the user to calculate the income tax payable before and after availing a Home Loan.
The deduction is applicable only for the individual borrower on the loan taken for residential house property taken only for the purpose of purchase or construction of the house. Unlike the selling restrictions on the property to avail benefits on home loan principal rebate there are no restrictions on the sale of the property to avail benefits on housing loan interest rebate in income tax. One-time service fee, brokerage charges, prepayment charges, etc. can also be claimed under this section for tax rebate on housing loan interest.
Deductions allowed on home loan interest
Previously, only one property could be considered self-occupied, and a second house was thought to be rented out, and therefore notional rent was computed and taxed as income. That’s why the government has given many home loan tax benefits to ease the burden. These benefits reduce the overall principal amount that you have to pay.
In case a person owns multiple properties, one of them will be considered self-occupied for the purposes of tax collection. Since no income tax is charged for a self-occupied property, one can choose the property that has higher applicable taxes to claim maximum benefit. If you have good credit, a large down payment and have a stable employment history, you will get a low interest rate. If you don't have good credit or a large down payment, you will pay a higher interest rate as well as mortgage insurance.
Deduction under Section 24 is also available to buyers who do not use home loan
You can calculate the tax benefit with the help of a home loan tax saving calculator. A) The additional deduction with respect to interest on loan taken will be applicable only for residential house property. The EMI paid by you has two components - principal repayment and interest paid. The amount repaid as principal component in the EMI can be claimed as a deduction under section 80C of the Income-tax Act, 1961 for self-occupied property. Currently, individuals can claim only one property as self-occupied and make tax payments on the other based on notional rent.
You can deduct mortgage interest as well as private mortgage interest. The key is to make sure that you are not having your interest deduction offset by the amount of property tax that you must pay in a year. If you are making less than $100,000 in a year, the mortgage interest deduction is your best friend.
Section 80C – Tax Deduction On Principal Amount
Section 80C of the IT Act makes provisions for yearly deductions of up to Rs.1.5 lakh towards principal repayment for both self-occupied and let-out properties. In order to claim this tax benefit, you should refrain from selling your property within the first 5 years of possession. If sold, your claims will be reversed in the year in which you sell the property.
Rebate is not applicable if the loan is borrowed from family members or friends.4. Tax payer can claim the rebate under Section 80EE only after exhausting the waiver provided under Section 24. According to Amit Modi, director of ABA Corp and president-elect, CREDAI Western UP, the deduction of principal amount on housing loan should not be clubbed with other deductions under Section 80C. “The deduction should be allowed separately, over and above the limit of Rs 1.50 lakhs under Section 80C. The limit under Section 80C should also be increased to Rs 3 lakhs in the Budget 2021,” Modi said. House Rent Allowance is the compensation provided by the employer to the employee to meet the expenses of rent. Under Section 10 of the Income Tax Act, 1961, employees can claim tax exemptions on rent payments every year.
In case if you own two houses, only one of them can be claimed as self-occupied property. The other house will be considered as a let-out property and will be taxed as per the tax slab applicable. The notional rent on your second house will be added to your income. The purpose of a home loan taken by an individual will most likely be to buy or construct a house. There is one important thing an individual has to remember that the construction of the house must be completed within 5 years from the end of the financial year on which the home loan is taken.
The home loan can be utilized by the buyer for purchases of under-construction property or ready-to-shift house / flat or repair/renovation of the house. In such a case, deductions can only be claimed towards the interest component under Section 24. The person from whom you borrow the capital, would also be obliged to issue you an interest certificate, based on which your deduction claim would be accepted.
Calculation results are approximations and for information purposes only and interest rates quoted are indicative. Calculation results are not intended to substitute professional advice, which the user is advised to seek. Home Loans not only make it possible for people to buy their dream home, but they do so while allowing individuals to save money by way of tax benefits. If you wish to save money, invest in an under-construction property as realtors quote lower prices for these properties in comparison to properties that are ready to move in.
Editor in Chief for Forbes Advisor US. Mike has written and edited articles about mortgages, banking and credit cards for a decade. Prior to joining Forbes Advisor, his work appeared on Bankrate, CreditCards.com and The Points Guy. Mike has also offered his personal finance expertise in numerous television, radio and print interviews.
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