Item: Income Tax Saving Through Home Loan 2021
Author: Muhammed Fasil K

Income Tax Saving Through Home Loan 2021

In my another post on the topic "Tips on How to Save Income Tax" I have mentioned that the home loan is the best way to save Income Tax, no other option can provide you as much Income tax saving which can you avail through home loan. In this post, I will discuss in detail about tax benefits for home loans. Under the Income Tax Act, tax payer can claim following deductions :

1. Deduction under section 80C for repayment of the Principal Amount

2. Deduction under section 24 for repayment of the Interest on Home Loan

3. Additional deduction under section 80EE for repayment of the Interest on Home Loan for First Time Buyers only.

4. Additional deduction udner section 80EEA

5. Deduction in respect of stamp duty and registration charges

The details of terms and conditions to avail the benefit of above mentioned deductions are explained below one by one :

1. Deduction under section 80C for repayment of the Principal Amount :

The amount paid as Repayment of Principal Amount of Home Loan by an Individual/HUF is allowed as tax deduction under section 80C. The maximum tax deduction allowed under Section 80C is Rs. 1,50,000.

This tax deduction under Section 80C is available on payment basis irrespective of the year for which the payment has been made. The Amount paid as Stamp Duty & Registration Fee is also allowed as tax deduction under Section 80C even if the Assessee has not taken Loan.

However, tax benefit of home loan under this section for repayment of principal part of the home loan is allowed only after the construction is complete and the completion certificate has been awarded. No deduction would be allowed under this section for repayment of principal for those years during which the property was under construction.

However, Section 80C(5) also states that in case the assessee transfers the house property on which he has claimed tax deduction under Section 80C before the expiry of 5 years from the end of the Financial Year in which the possession has been obtained by him, then no deduction and tax benefit on Home Loan shall be allowed under Section 80C. The aggregate amount of tax deduction already claimed in respect of previous years shall be deemed to be the Income of the Assessee of such year in which the property has been sold and the Assessee shall be liable to pay tax on such income.

2. Deduction under section 24 for repayment of the Interest on Home Loan :

Tax Benefit on Home Loan for payment of Interest is allowed as a deduction under section 24. As per Section 24, the income from house property shall be reduced by the amount of Interest paid on Home Loan where the loan has been taken for the purpose of Purchase/Construction/Repair/ Renewal/ Reconstruction of a Residential House Property.

The maximum tax deduction allowed under Section 24 of a self-occupied property is subject to a maximum limit of Rs. 2 Lakhs. In case the property for which the Home Loan has been taken is not self-occupied, no maximum limit has been prescribed in this case and the taxpayer can take tax deduction of the whole interest amount under Section 24.

In case a property has not been self-occupied by the owner by reason of the fact owing to his employment, business or profession carried on at any other place, he has to reside at that other place not belonging to him, then the amount of tax deduction allowed under Section 24 shall be Rs. 2 Lakhs only.

It is also important to note that this tax deduction of Interest on Home Loan under Section 24 is deductible on payable basis, i.e. on accrual basis. Hence, deduction under Section 24 should be claimed on yearly basis even if no payment has been made during the year as compared to Section 80C which allows for deduction only on payment basis.

Moreover, if the property is not acquired/constructed completed within 3 years from the end of financial year in which the loan was taken, the interest benefit in this case would be reduced from 2 Lakhs to Rs 30 thousand only. This limit of 3 years has been increased to 5 years from Financial Year 2016-17 and onwards.

While deduction for interest can be claimed starting the financial year in which the construction is completed, you can also start claiming pre-construction interest from the same year. You need to add up the entire pre-construction interest and claim it in five equal instalments. The total deduction, however, should not exceed Rs 2 lakh when the house is being used by you for your own residence.

3. Additional deduction under section 80EE for repayment of the Interest on Home Loan for First Time Buyers only.

Section 80EE provides for additional Deduction of Rs. 50,000 for Interest on Home Loan. This incentive would be over and above the tax deduction of Rs. 2,00,000 under Section 24 and Rs. 1,50,000 under Section 80C.

To claim deduction under Section 80EE following conditions required to be met :

1. The value of the property purchased is less than Rs. 50 Lakhs and amount of loan taken is less than Rs. 35 Lakhs.

2. The loan should be sanctioned between 1st April 2016 and 31st March 2017.

3. The benefit of this deduction would be available till the time the repayment of the loan continues.

4. This Deduction would be available from F.Y. 2016-17 onwards.

4. Additional deduction under section 80EEA

The additional deduction u/s 80EEA has been introduced in budget 2019 for home buyers for the maximum amount up to rupees 1.5 lacs. For claiming this deduction, the stamp value of the property should not exceed Rs.45 lacs. The loan should have been approved between 01/04/2019 to 31/03/2020 and on the date of approval of loan, individual must not own any other house property. You should not also be eligible to claim deduction under section 80EE.

5. Deduction in respect of Stamp Duty and Registration Charges

Deduction for stamp duty and registration charges can also be claimed under section 80C however it should be within the overall limit of rupees 1.5 lacs. It is also important to note that the Deduction in respect of Stamp Duty and Registration Charges can only be claimed in the years in which it has been incurred.

E-book on draft resolutions and procedures

Income Tax Saving Through Home Loan 2021