Income Tax Benefits on Housing Loan in India

Income Tax

Published on: Jul 9, 2015 @ 13:57

A  house  property  is  also  a  good  tax  saving  tool   and   there  are   many   income tax benefits if you   have  a housing  loan  for  the same.  You  are  entitled  to  many  income tax benefits related to  purchase  of  property. Once you  have  a  loan  in  your  hand,  you  pay  a periodical interest and  also  repay  the  principal  amount. The I-T  law provides  for  income tax benefits  in both instances. Buying  a  first  home  on  a  housing  loan  comes with  many income tax benefits. Here are  some  deductions  you  can  claim  when  you  take  a  housing  loan:

If  you  are  paying  EMIs  for  a  loan  you  took  to  buy  a  house,  the  interest  component  in  the EMI  can be claimed  as  deduction  under  section  24  of  I-T  Act.  Tax  deduction  on  account  of interest  on  housing  loan for self  occupied  property  is  Rs 2 lakh  under  section  24  of  I-T  Act of  India.  You  can  claim  income tax benefits up to  Rs 2.0 lakh or  the  actual   interest   repaid   whichever  is  lower.  You  can  claim   this   interest   only   when   you  are  in  the  possession  of the  house.

You  must  be  either  an  applicant  or  a  co-applicant  in  the  loan  application  to  claim  income tax benefits.  This deduction  can  be  claimed   starting   the  year   in   which   the  construction  of the  house  is  completed.  So,  every year  a  maximum  of   Rs 2  lakh  can  be  claimed  for  a self-occupied   house.  If  your  house  is  rented,  the  entire interest  for  the  year  can  be  claimed as deduction.

While  deduction  for  interest  can  be  claimed  at  the  beginning  of  the  financial  year  in  which the  construction is  completed,  you  can  also  start  claiming  pre-construction  interest  from  the same  year.  The  total  deduction, however,  should  not  exceed  Rs 2 lakh.

Buying  an  apartment   which  is  under   construction  is  sometimes   cheaper.  The  I-T  law permits  you  to  claim the  total  interest  paid  during  the  pre-delivery  period  as  a  deduction  in five   equal  installments   starting  from the  financial  year  in  which  construction  was completed or  you  get  the  possession  of  your  apartment.  But  the maximum  you  can  claim as deduction per  year  continues  to  be  Rs 2 lakh.

You  can  claim  deduction  of  Rs 2 lakh, if  the  possession  or  construction  is  completed  within 3  years  from  the end  of  the  financial  year  in which  the  loan  was  taken; else  the  deduction allowed  will  be  limited to Rs 30000.

The  component  of  your  EMI  towards   principal   amount  is  eligible  to  be  claimed   under   Section  80c  of   the Income  Tax  Act.  Principal   can  be   claimed  up  to  the  maximum   of   Rs 1.5  lakh   under   this  section.  You  can sum  up  the  repaid  amount  for  the  year  towards principal  and  claim  it.

The  principal   repayment  of  the  housing  loan   made  by  you   is  allowed  as  a  deduction  from your  gross   total income  subject  to  an  overall  cap  with  other  eligible  investments  of  Rs 1.50 lakh.  Unlike  deduction  of  interest, deduction  of  principal  repayment  will  be  allowed  only  if the  housing  loan  is  taken  from  specified  institutions like banks  or LIC.

For  a  built-up  property   or  a  single  residential   unit,  stamp  duty  is  to  be  paid   on  purchase of   the  property. Apart   from   the   deduction   allowed   on   principal   repayment,   payment   made   towards   stamp   duty   and registration   charges   are  also   allowed  to  be  claimed   under  Section   80C  of  the  I-T  Act.  However,  these  can only  be  claimed  in  the  year  in  which these were  paid.

If   your   spouse   is   working  and  you  have  bought  the  apartment   jointly  and   having  a  joint housing  loan,  in this  case  both  of  you  will  be  entitled  to  avail  separate   deductions   in   your  income   tax   returns  up  to  Rs 2 lakh. The  maximum   limit   of  income tax benefits  is  Rs 2.0 lakh   for   interest   and   Rs 1.5  lakh   for   principal   individually  to  both  the  loan borrowers.

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