Various Tax benefits on Home Loan as per Income Tax Act, 1961 (With FAQ)

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Various Tax benefits on Home Loan as per Income Tax Act, 1961 (With FAQ)

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Tax Benefits on Home Loan (FY 2021-22)

The following table gives you the tax benefits under the corresponding sections of the Income Tax Act, 1961.

Income Tax Act Maximum Deductible Amount
Section 24 Rs. 2 lakh per annum
Section 80C Rs. 1.5 lakh per annum
Section 80EE Rs. 50,000

New Updates (Union Budget 2021-2022)

Here are updates from the latest budget presented by Union Finance Minister Nirmala Sitharaman on 1 February 2021:

  • Eligibility period for claim of additional deduction for interest of Rs.1.5 lakh paid for loan taken for purchase of an affordable house extended till 31 March 2022.
  • Eligibility period for claiming tax holiday for affordable housing project extended by another year. The new deadline is 31 March 2022.
  • New tax exemption proposed for the notified Affordable Rental Housing Projects to promote supply of Affordable Rental Housing for the migrant workers.

Deductions available on Interest Portion on Home Loan

One can claim deduction for Interest portion paid on home loans. The deduction is available for both pre-acquisition and post acquisition period. The deduction is available both for let out and self-occupied house property. These provisions are given in Section 24B of the Income Tax Act. The same can be summarized as follows: –

Purpose of Loan Type Of Property
       Self-Occupied       Let-Out Property
Acquisition/Construction  
Interest for pre-acquisition period Interest can be claimed after the construction of property in 5 equal installments Interest can be claimed after the construction of property in 5 equal installments
Interest for Post acquisition period

*(Deduction can be claimed only if construction/acquisition is completed within 5 years of borrowing.)

Deduction can be claimed up to Rs.2, 00,000/- under the head house property. The amount of actual rent paid can be claimed as deduction.
Amount borrowed for repairs, reconstruction or renewals of house Rs.30,000/- can be claimed as deduction Actual amount of interest paid will be allowed as deduction.

Some other relevant points-

  • As per recent amendment, w.e.f AY 2020-2021, the deduction can be claimed in respect of two self-occupied also, however the upper limit will be Rs.2,00,000/-.
  • In case the construction/acquisition of residential property is not completed within 5 years, than the deduction of interest will only be allowed up to Rs.30,000/-.
  • If case of person having more house properties, only 2 house properties will be treated as self-occupied and other will be taken as let-out only.
  • The set-off of loss from house property has been restricted to Rs.2,00,000/-. This implies that balance loss if any should be carried forward and can be set-off in upcoming years. The carry forward of a loss is allowed up to 8 assessment years.

Deductions available on Principle portion

Just like interest portion, income tax act also provides for you to be able to claim deduction for principle repayment. To obtain the details of principle portion in your EMI, you can get in touch with your lender and get it from your repayment schedule easily.

The principle repayment can be claimed as deduction under section 80C, up to the maximum limit of Rs.1.5 lakhs. The pre-conditions to claim this deduction are:-

  • The borrowing should be for a new house
  • The property acquired or constructed should not be sold within the period of 5 years.

If the house is sold within 5 years than the deductions claimed will be added back to income.

Special Deductions for first time home buyers

Section 80EE and 80EEA are two special deductions for claiming deduction on interest portion. These deductions are introduced keeping in mind the affordable housing and first time home owners. Now, we will discuss what are the conditions to met to claim deductions under these sections one by one-

Section 80EE- Deduction in respect of interest on loan taken for residential house property

The deduction under this section is available only to individuals. The deduction is available to extent of Rs.50, 000 for the interest paid on loan. Following conditions should be satisfied-

  • The loan has been sanctioned during the financial year 2016-2017.
  • Loan should have been sanctioned by a financial institution or any housing finance company.
  • The sanctioned amount of loan should not be more than Rs.35 lakhs and the value of house property should not be more than Rs.50 lakh rupees.
  • The assessee should not have any other house property in his name.

It must be noted that this deduction is over and above the deduction u/s 24 and can be claimed until the loan is fully paid.

Section 80EEA- Deduction in respect of interest on loan taken for certain house property

This section is the most recent introduction to the lot of income tax provisions that help the home loan borrowers. This section allows to claim deduction up to an amount of Rs.1.5 lakhs on the interest portion. This deduction can be claimed by people who are not eligible under Sec.80EE.

The deduction will be allowed from 01.04.2020 and for subsequent years. The conditions that must be satisfied to claim this deduction are:-

  • The loan has been sanctioned in the financial year 2019-2020.
  • The stamp duty value of the residential house property should not be more than Rs.45 lakhs.
  • The assessee should be having any other house property on the date of sanctioning of loan.

Just like Sec.80EE, this deduction is also over and above deduction u/s 24 and can be claimed until the loan is fully paid.

File your Income Tax Return

Frequently asked questions

There are certain questions that are generally asked by home buyers. Let us try to answer some of those questions.

Q1- Is the amount paid for stamp duty and registration charges available for deduction?

Ans- YES. The deduction can be claimed u/s80C up to the overall limit of Rs.1,50,000/-. The deduction should be claimed in the year in which expenses are incurred.

Q2- If both husband and wife are joint owners, can both claim the deduction?

Ans- YES. If both are joint owners and are bearing the loan than both of them can claim deduction. In case of special deductions also the deduction can be claimed by both but both of them should satisfy the conditions individually.

Q3- Can a person claim HRA deduction and deduction for interest on loan at the same time?

Ans- The answer to this question depends on situation. If the person is staying in a different house and paying rent thereon then he can claim both at the same time. In case the town house is vacant it will be considered as self-occupied and deduction of Rs.2,00,000 will be allowed. If the own house is let-out then the amount of interest expenses paid will be allowed as deduction.

These are most common doubts in the minds of new home buyers. In case of any other doubts and queries please reach out to our team at Legal Window

Conclusion

From above discussion we can say that these kinds of incentives not only give boost to the real estate sector but also motivate people to realize their dream of owning a home. Government of India’s schemes like Aawaas yojana or Housing for all has given a whole new perspective to the home buyers. These income tax deductions by reducing the tax liability of the home buyers leave them with some additional money to pay back their loans. So, if you are home buyers then please take into consideration all these tax benefits on home loan offered by Income Tax Law and make the best out of it.

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CA Pulkit Goyal, is a fellow member of the Institute of Chartered Accountants of India (ICAI) having 10 years of experience in the profession of Chartered Accountancy and thorough understanding of the corporate as well as non-corporate entities taxation system. His core area of practice is foreign company taxation which has given him an edge in analytical thinking & executing assignments with a unique perspective. He has worked as a consultant with professionally managed corporates. He has experience of writing in different areas and keep at pace with the latest changes and analyze the different implications of various provisions of the act.

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