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Tax Planning through savings and investments

Tax Deductions on Home Loan Repayment

Buying a house is everyone’s dream. In order to encourage individuals to invest in a home, the government of India has provided tax deduction on home loan under section 80C. But that’s not all. Multiple tax deductions are available on home loans making millions of dreams come true. 

 

To be eligible for tax deduction, a home loan must be taken for the purchase or construction of a house and the purchase or construction must be completed within 5-years from the end of the financial year in which the home loan was taken. 

 

A home loan EMI consists of two components – the principal and the interest. 

 

Deduction on principal repayment on home loan EMI

The principal portion of the EMI is also tax-deductible under section 80C. The maximum amount that can be claimed in a financial year is ₹150,000. However, if the property is sold within 5-years of possession, then the deducted amount will be added back to your income in the year of sale.

 

Deduction on interest paid on home loan EMI

The interest paid on the EMI is tax-deductible under section 24 of the Income Tax Act. The maximum total amount of deduction allowed in a financial year is ₹200,000 for self-occupied property. However, for property put on rent, there is no maximum limit. 

 

Deduction for interest paid on a home loan during the construction period:

In case you have bought an under-construction property, and are already paying EMIs without taking possession of the house, the above two sections do not apply. However, this does not mean that you lose out on tax benefits on the EMI that you pay for an under-construction property. 

 

The interest portion of the EMI can be claimed as pre-construction interest through deduction in five equal installments starting from the year of possession of the property. This is over and above the deductions, you are eligible for under section 24 mentioned above. However, the maximum cap of such a claim remains ₹200,000. 

 

Deduction for stamp duty and registration charges:

We all know that stamp duty and registration charges while a property can be quite high. The good news is these payments are also eligible for tax deduction under section 80C. The maximum limit is ₹150,000. 

Please note: This can be claimed only in the year in which the expenses have been incurred and not anytime later. 

 

Additional deduction under section 80EE

  • Homebuyers can claim an additional deduction of up to ₹50,000 under section 80EE if the following conditions are met:
  • The loan is sanctioned between 1st April 2016 to 31st March 2017. 
  • The amount of loan taken should be ₹35 lakhs or the less or the total value of the property is less than ₹50 lakhs. 
  • The individual is a first-time homeowner, as in he/she does not own any other house, as on the date of sanction of the loan. 

Additional deduction under section 80EEA

  • Section 80EEA provides additional deduction to homeowners up to ₹ 150,000 if the following conditions are met:
  • The loan must be sanctioned between 1st April 2019 to 31st March 2020.
  • The stamp value of the property does not exceed ₹45 lakhs.
  • The individual does not own any other house i.e. he/she is a first-time buyer at the time of buying a house.
  • The individual should not be eligible for tax deduction under section 80EE. 

Tax deduction for joint home loans:

Many home loans are taken jointly these days and both borrowers file taxes. In this case, both can claim a deduction. The maximum limit for deduction on the principal is ₹200,000 and interest is ₹150,000 for each borrower. 

 

Please note that to claim this deduction, both borrowers have to be co-owners of the property as well. 

 

Let us now summarize the various provisions related to tax deductions on home loans:

If you are interested to learn about home loans in detail you can read our detailed module on home loans. This module can serve as a guide before taking a Home Loan.

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Units 13/15