Tax Deduction on Home Loans
a. Tax Deduction on Home Loan Interest: Section 24
Homeowners can claim a deduction of up to Rs 2 lakh on their home loan interest, if the owner or his family resides in the house property. The same treatment applies when the house is vacant. If you have rented out the property, the entire home loan interest is allowed as a deduction.
However, your deduction on interest is limited to Rs. 30,000 instead of Rs 2 lakhs if both the following conditions stand satisfied:
a. The loan is taken on or after 1 April 1999
b. The purchase or construction is not completed within 5 years from the end of the FY in which loan was availed
When is the deduction limited to Rs 30,000?
As already mentioned, if the construction of the property is not completed within 5 years, the deduction on home loan interest shall be limited to Rs. 30,000. The period of 5 years is calculated from the end of the financial year in which loan was taken. So, if the loan was taken on 30th April 2015, the construction of the property should be completed by 31st March 2021. (For years prior to FY 2016-17, the period prescribed was 3 years which got increased to 5 years in Budget 2016).
Note: Interest deduction can only be claimed, starting in the financial year in which the construction of the property is completed.
How do I claim a tax deduction on a loan taken before the construction of the property is complete?
Deduction on home loan interest cannot be claimed when the house is under construction. It can be claimed only after the construction is finished. The period from borrowing money until construction of the house is completed is called pre-construction period.
Interest paid during this time can be claimed as a tax deduction in five equal instalments starting from the year in which the construction of the property is completed. Understand pre-construction interest better with this example.
b. Tax Deduction on Principal Repayment
The deduction to claim principal repayment is available for up to Rs. 1,50,000 within the overall limit of Section 80C.Check the principal repayment amount with your lender or look at your loan installment details.
Conditions to claim this deduction-
- The home loan must be for purchase or construction of a new house property.
- The property must not be sold in five years from the time you took possession. Doing so will add back the deduction to your income again in the year you sell.
Stamp duty and registration charges Stamp duty and registration charges and other expenses related directly to the transfer are also allowed as a deduction under Section 80C, subject to a maximum deduction amount of Rs 1.5 lakh. Claim these expenses in the same year you make the payment on them.
c. Tax Deduction for First-Time Homeowners: Section 80EE
Section 80EE recently added to the Income Tax Act provides the homeowners, with only one house property on the date of sanction of loan, a tax benefit of up to Rs 50,000.
c. Tax Deduction for First-Time Homeowners: Section 80EEA
A new section 80EEA is added to extend the tax benefits of interest deduction for housing loan taken for affordable housing during the period 1 April 2019 to 31 March 2020. The individual taxpayer should not be entitled to deduction under section 80EE.
These benefits are not available for an under construction property.
Do you own more than one house?
If you own more than one house, you need to file the ITR-2 form.