1. Tax benefits:-
1. Section 80 C :- Upto 150000 of principal repayment
2. Section 24(b):- Interest on borrowed capital as follows :-
a) In respect of let-out property, actual interest incurred on capital borrowed for the purpose of acquisition, construction, repairing, re-construction shall be allowed as deduction.
b) In respect of self-occupied residential house property, interest incurred on capital borrowed for the purpose of acquisition or construction of house property shall be allowed as deduction up to Rs. 2 lakhs. The deduction shall be allowed if capital is borrowed on or after 01-04-1999 and acquisition or construction of house property is completed within 5 Years.
c) In respect of self-occupied residential house property, interest incurred on capital borrowed for the purpose of reconstruction, repairs or renewals of a house property shall be allowed as deduction up to Rs. 30,000.
* With effect from Assessment Year 2020-21, deduction for interest paid or payable on borrowed capital shall be allowed in respect of two self-occupied house properties. However, the aggregate amount of deduction under this provision shall remain same i.e., Rs. 30,000 or Rs. 2,00,000, as the case may be.
* Any interest pertaining to the period prior to the year of acquisition/ construction of the house property shall be allowed as deduction in five equal installments, beginning with the year in which the property was acquired/ constructed.
3. Section 80 EE: – Up to Rs 50,000. It is over and above the Rs 2 lakh limit under Section 24 of the Income Tax Act.
Conditions to be met for claiming deduction under section 80 EE:-
- Value of the house should be Rs 50 lakh or less.
- Loan taken for the house must be Rs 35 lakh or less.
- The loan must be sanctioned by a financial institution or a housing finance company.
- The loan must be sanctioned between 01.04.2016 to 31.03.2017.
- As of the date of the sanction of the loan, no other house property must be owned by you.
4. Section 80EEA: – Under the objective “Housing for all” The Union Budget 2019 has introduced a new Section 80EEA to extend the tax benefits of the interest deduction up to Rs 1,50,000 over and above the Rs 2 lakh limit under Section 24 of the Income Tax Act for housing loans sanctioned between 04.2019 to 31.03.2020.
Conditions to be met for claiming deduction under section 80 EEA:-
- Housing loan must be taken from a financial institution or a housing finance company for buying a residential house property.
- The loan should be sanctioned during the period 1st April 2019 and 31st March 2022.
- Stamp duty value of the house property should be Rs 45 lakhs or less.
- The individual taxpayer should not be eligible to claim deduction under the existing Section 80EE.
- The taxpayer should be a first-time home buyer. The taxpayer should not own any residential house property as on the date of sanction of the loan.
Some Tax Tips:-
1. Section 24 mentions the words “paid or payable” in respect of interest payment on housing loan. Hence, deduction can be claimed even if the interest is not paid.
2. If the house property is sold within 5 Years the tax benefit taken under section 80 C on principal repayment is liable to be reversed and added to your annual taxable income in the year in which the property is sold.
3. Only for section 24 and not for 80 EE and 80 EEA interest payments on loan taken from friends and relatives is also eligible for deduction.
4. Tax benefits also available to co-borrowers.
2. Apart from the above tax benefits there are some other important benefits also:-
1. Capital appreciation: Due to passage of time prices of the property increases and the amount of loan decreases. For instance you have taken a loan of 20 lakh for 20 year period and you repaid 38 lakh with interest during this 20 year period but the prices of the property subject to inflation of 5-6% rises to Rs. 66-70 Lakhs.
2. No blockage of own capital: Initial capital required to buy/construct the property may be used somewhere else to earn better opportunity cost the differential interest of 2-3 % make a huge amount in 20-30 years. For instance in one of my friend’s case he had deposited his capital in flexi Cap fund which becomes 15X in 20 years period i.e. earning a CAGR of 14-15 % where his Housing loan interest rate is 7.4%.
3. Low interest rate: Buying a home is a long-term decision of over a 20-25 year period; so always check whether you are getting loan on MCLR ( i.e. marginal cost of funds based lending rate is the lowest interest rate that a bank or lender can offer) or on Fixed Rate. The interest rates may go through several up and down cycles. Therefore, you can be sure that you will benefit from falling rates at some point in the cycle by availing loan on MCLR. There could also be situations in which the interest rates fall, allowing you to prepay your loan and own your home. For instance, those who bought property in 1995, at an interest rate of 18 per cent, not only saw interest rates fall dramatically over the next decade, to bottom out at about 7.5 per cent, property prices too appreciated steeply. This works as a double boost to wealth.The best way to manage borrowing costs is by actively managing your home loans. That’s not as difficult as it is sounds. Banks and home-loan lenders often give new borrowers much better rates than existing borrowers. During the uptick of the interest rate cycle, if your cost of borrowing increases by more than 2 percentage points, pay 0.5 per cent of the loan outstanding as processing fee (conversion charge) to your lender to avail the rates offered to the new borrowers.
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