A home loan must be taken for the purchase/construction of a house and the construction of the house must be completed within 5 years from the end of financial year in which loan was taken. If you are paying EMI for the housing loan, it has two components – interest payment and principal repayment. The interest portion of the EMI paid for the year can be claimed as a deduction from your total income up to a maximum of Rs 2 lakh under Section 24 in case of self occupied house.
The Principal portion of the EMI paid for the year is allowed as deduction under Section 80C upto Rs.1.50 Lakh. The tax deduction on principal repayment is also a part of the various deductions allowed u/s 80C, which includes amount invested in PPF Account, Tax Saving Fixed Deposits, Equity Oriented Mutual funds, National Savings Certificate, Senior Citizens Saving Scheme, etc. The deduction limit of section 80C is inclusive of all these options. This tax deduction is available on payment basis and does not depend on the year for which the payment has been made by the assessee
For Assessment Year 2019-20 maximum deduction for interest paid on Self Occupied house property is Rs 2 Lakh & for let out property, there is no upper limit for claiming interest.
The tax benefit under section 24 is reduced from Rs 2 lakhs to Rs 30,000, if the property is not acquired or construction is not completed within 3 years from the end of Financial Year in which the loan was taken. However, the limit of 3 years has been increased to 5 years from Financial Year 2016-17 and onwards
Assesee bought an under-construction house and have not moved in this house yet. But he is paying the EMIs for this loan. In this case, whether he is eligibility to claim interest on the home loan as a deduction during the period falling between the borrowing of loan and completion of construction?
Until construction is complete or acquisition is made, the period is called as “Prior Period”. Period between when the money was borrowed up to construction of the house is called as “Pre-construction” period. Until possession of the house, the borrower will have to just pay interest on the loan amount borrowed to the lender, this is called as “PPI- Prior Period interest”
The income tax law provides for the claim of such interest also, called the pre-construction interest, as a deduction in five equal instalments starting from the year in which the property is acquired or construction is completed.
If borrower repay the principal during pre-construction period to lender, then this is not eligible for tax deductions. Tax deduction benefit is not available on loan taken for buying a plot or land.
To enjoy this benefit it is important that the borrower should furnish house construction completion certificate
If you have claimed the deduction u/s 80C, then you should avoid selling the house property in less than five years from the end of financial year in which you received its possession. If you sell the property within this time limit then you will not be eligible to claim any deduction for the principal repaid during the current F.Y. and the total amount of tax deduction already claimed in respect of earlier years shall be deemed to be your income of such year in which you sold the property and you will be liable to pay tax on that income.
Tax deductions under Section 24 are for interest on home loan and this is on accrual basis
If the home loan taken is not for self-occupation purpose then whole interest amount can be claimed as tax deductions under Section 24. There is no maximum limit for claiming tax deductions for not self-occupied property.
Tax deduction can be availed only if the construction of the housing property is completed within 5 years of taking home loan. Any commission paid towards arranging a home loan is not eligible for tax deductions. Money spent towards registration of the housing property and stamp duty is eligible for tax deductions
In case if the house property is not earning any income to the owner and thus the interest of the home loan is a loss, then such loss can be adjusted against income from various other heads within the same financial year
In case if the loss incurred cannot be set off against income from other heads of the same financial year, such losses can be carried forward upto next 8 years financial years
If the loan is taken jointly, then each of the loan holders can claim a deduction for home loan interest up to Rs 2 lakh each and principal repayment u/s 80C up to Rs 1.5 lakh each in their individual tax returns. To claim this deduction, they should also be co-owners of the property taken on loan.