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.
Ajay Verma is a founder and writer of The Housing World, a real estate and mortgage news website. He brings with him 20+ years of rich experience in the real estate and mortgage industries. He has worked in senior roles in Delhi and NCR in the above-mentioned sectors.