The Government is encouraging Individuals to invest in House Property and providing greater benefits to them by giving tax relaxation. If you are planning to buy a new house then it would be wise to go for housing loan even as it helps you to save tax on income. Payment of housing loan gives you an opportunity to save taxes by claiming benefit of both Interest as well as Principal repayment of the Housing Loan when you go for e-filing of tax returns. The Income Tax Act provides deduction under section 80C against Principal Repayment and exemption under Section 24(b) on Interest payment of Housing Loan.

There are 2 possible situations which would determine how you can claim the tax benefits. A Housing loan can be obtained against a property whose possession is received or is yet to be received as it is being constructed.

Housing Loan taken and possession received in the same year.

Housing Loan can be taken for purchasing or constructing a new house property. When a loan is taken in the same year in which the house property is purchased or constructed, one can enjoy the tax benefits on payment of both principal and interest component of the housing loan.

Principal: The repayment of principal component of housing loan is entitled for exemption under 80C up to Rs. 150,000 along with all other permissible instruments like, life insurance premium, PPF, ELSS, NSC etc. 80C deduction for principal repayment of housing loan is allowed as soon as you start repaying the loan. This tax benefit can be claimed irrespective of the fact that the property is being self occupied or let out.

For claiming such deduction there are certain requirements to be fulfilled i.e. principal repayment will be considered for deduction only if the loan is not taken for improvement, extension, renovation or alteration of an existing house. Further, it cannot be claimed if an individual has taken home loan from relatives or friends or from any other source, which is not mentioned as Specified Institution/Department.

Interest: Section 24(b) of Income Tax Act entitles you to claim exemption on interest payment of housing loan against the property purchased or constructed. The benefit can only be taken from the year in which the possession has been received. The actual interest payable is allowed as deduction subject to maximum of Rs. 200,000 for a Self-Occupied property. In the case of Let-Out property, there is no maximum limit and the entire amount of interest payment can be taken for tax benefit.

If the fresh loan has been raised to repay the original loan and the new loan has been used only for the purpose of repaying the original loan then the interest paid on such fresh loan is also allowed as deduction. Penal interest on housing loan shall not be allowed as deduction. If the purchase price of the property is paid in installments with interest, the interest portion of the installment is an allowable deduction under Section 24.

Housing Loan taken but possession received next year or later.

Often it is seen that housing loan is taken but the possession of the property is received in the next or later financial year. It may be because the property is not completed or constructed. Tax benefits of housing loan can still be enjoyed but there are certain restrictions to it.

Principal: Till the house is not constructed and the possession is not taken over, deduction on house loan principal repayment is not allowable. You need to have possession and certificate of ownership to claim tax under section 80C. In simple words it is said that you should be the owner of the house property. After the possession is received, the deduction can be claimed normally up to a maximum of Rs. 1.5 Lakhs under section 80C.

Interest: The interest deduction u/s 24(b) can be claimed after the possession of the house property is taken over. However, the total amount of interest paid on home loan prior to possession of house property as can be claimed as pre-construction interest in 5 equal installments for next 5 years from the financial year in which possession is received. The pre-construction interest is allowed upto a limit of Rs 2 Lakhs including the current year interest payment on home loan. This can be claimed only after the house is ready and possession is taken over. If the house has been let out, the taxpayer can claim the entire interest component as deduction from the rental income without any restriction.

Kindly Note in respect of set-off and carry forward of losses there are some recent changes :

With effect from financial year 2017-18 Govt has restricted the limit of set off of loss from house property against other heads of Income to Rs. 2 Lakh. Till financial year 2016-17 there was no restriction and assessee was allowed to set-off any loss from house property against other heads of Income. Please note the restriction is placed on set-off of losses and not on the amount of home loan interest that can be claimed as a deduction under Section 24 for a rented house property, the losses which could arise on account of such interest repayment can be set off only to the extent of Rs 2 lakhs. Such loss in excess of Rs. 2 Lakh can be carried forward for upto 8 Assessment Years succeeding the year of loss and can be set off against Income under the head House Property.

(Republished With Amendments)

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Category : Income Tax (28574)
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Tags : Budget (1960) Budget 2014 (172) Housing Loan (38) Income Tax Deductions (439) section 24 (59) Section 80C (163)

10 responses to “Double Benefit on Taxes on Housing Loan”

  1. sushma says:

    I booked a constructed flat rs. 20.00 lac in. Bhopal in Jan 2015 and possession will be handed over in June 2015.How will I claim tax benefit.
    I am planning to pay back this housing loan in next 9-10 month to get maximum benefit and then purchase another property. My EMI will start from Feb 2015.

  2. Jiten Dahra says:

    Daily tax advice housing loan

  3. Asst Exe Enginneer says:

    sir,
    Iam a kerala state government employee and recently received arrears of three years resulting a huge amount of income tax Is it possible to claim the interest on housing loan in 10E which are not claimed during the previous years for calculating the income tax purpose during the scrutiny period of income tax.

  4. Roopesh Mishra says:

    useful information

  5. Nilesh says:

    I booked a flat in under construction property 18 months back and got possession in Dec 14. So, I would be claiming full interest paid this year plus 1/5 portion of interest paid so far as pre-construction interest upto the limit of Rs.2Lac.

    My question is – if i sell this flat in April 15, would i be eligibile for claiming remaining pre-construction interest in subsequent four years when i will not be the owner of the said property. Advice please.

    Kind regards

  6. KUMAR K IYER says:

    I WANTED TO KNOW THE PROCEDURES TO BE FOLLOWED FOR CLAIMING HOUSING INTEREST EXEMPTION FOR INDIVIDUALS – AS I HAVE AVAILED HAND LOAN/PERSONAL LOAD FROM INVIDIDUAL TO THE TUNE OF RS.2,00,000 EACH AT 18% INTEREST AND WANTED CLAIM INTEREST EXEMPTION – AS LOSS AGAINST THE HOUSING LOAN PROPERTY – PLS LET ME KNOW THE PROCEDURS TO BE FOLLOWED

  7. Anil says:

    Dear sir,

    I had taken a loan for a flat. the loan sanction date was Apr 2010. I got the possession of the flat in May 2014.
    To take the loan interest benefits, when I entered the loan details to my office automated system, I was shocked to find out that I will not be able to take the full benefit of interest repayment since the possession date is more than 3 years from the loan sanction date.

    What do i do ?

    Thanks
    Anil

  8. Arvind Kumar Jain says:

    I have booked a flat in October 2013 and I have taken a loan against this flat in Nov. 2013 worth Rs. 26,96,000/-. Loan from the bank is being paid in installments as per the stage of building constructed. Bank is charging interest on the paid installments. My Question is that when shall I be eligible to claim tax benefit, how much and what manner.

  9. Joseph says:

    I have two housing loans on two different properties. Can I get tax benefit of both the loans?

  10. Zuber says:

    Sir,

    I have registered a property in Aug 2014 and I am paying an Emi of Rs. 31400 (Prin+int).

    The property is still under construction and I will be getting the possession in Jan 2015.

    Now my Q. is how I can claim both HRA till Dec 2015 and repayment of interest component.

    Thanks & Regards
    Zuber

  11. Sandeep says:

    Dear Sir
    I took a home loan for my new flat in April 2014 and fully EMI started from May 2014. I will get the hand over of the house in First week Jan 2015 .
    When I took the provisional statement for my house loan its indicating interest paid 1,94,000 and the principle is around 1 Lac .

    How can I claim in 80C and section 24.
    From April to January I stayed in a rented house whether I will get the tax benefit of rent I paid as HRA

  12. keshav says:

    Dear Sir,
    I have taken home improvement load for my house. I am paying principal amount and interst on it. can I get tax bebefit on both ?

  13. ram says:

    WHETHER LOAN TAKEN AGAINST PROPERTY (LAP) USED FOR CONSTRUCTING HOUSE, INTEREST ON THE SAME CAN BE CLAIM AS INTEREST ON BORROWED CAPITAL

  14. Padmassri says:

    My question is related to tax benefit for property under construction. I am thinking of booking a flat and my EMI will start from 2015 and I will get possession only in mid 2018 so will I be eligible to claim tax benefit under section 80C and 24(interest paid) in the FY2018 ? I had this doubt since I came across following link
    charteredclub.com/tax-benefit-on-home-loan/ where they mention that there is a limit of 3 year for the construction to be complete.
    So in my case will I loose out the tax benefit under section 24 since the construction duration exceeds 3 years ? Please advice.

    Regards,
    Padma

  15. L.A.RAO says:

    I TOOK HOME LOAN FROM A BANK TO PURCHASE A FLAT AT HYDERABAD DURING THE YEAR 2003 AND OCCUPIED THE SAME IMMEDIATELY.I AM STILL PAYING THE EMI TO THE BANK AND LIKELY TO PAY FOR ANOTHER FIVE YEARS. NOW IAM PLANNING TO PURCHASE ANOTHER FLAT AT BANGLORE BY TAKING ANOTHER HOME LOAN FROM BANK.WHAT WILL BE THE TAX BENIFITS IF:
    1.I RENT OUT THE NEW FLAT AT BANGLORE AND REMAIN SELF OCCUPIED THE FLAT AT HYDERABAD.
    2. I RENT OUT THE FLAT AT HYDERABAD AND OCCUPY NEW FLAT AT BANGLORE.
    YOUR ADVISE IS URGENTLY SOLICITED TO TAKE DECISION

  16. ca. BHAVESH SAVLA says:

    Agree with gaurav. Also, I think, as per a recentjudgement of the mumbai income tax tribunal even the penal interest on prepayment of housing loan is admissible.

    CA. Bhavesh Savla

  17. R.K.Khattri says:

    Q. In case Assessee have one Self occupied House property, he want to purchase one more House property & taking a loan. In that case benefit
    related to Home Loan- repayment, principal & Interest is applicable.

    Pl advice.

    with regards.

  18. Hakimuddin Sadriwala says:

    The article doesnt speaks abount section 80EE deduction. It would have been more useful.

  19. gaurav says:

    Sir

    It is confirm the deduction of principal amount prior to construction period is not permissiable under 80C. if it is true then from which time it is applicable because in act no one words are mentioned as it

  20. PANKAJ HASTWALA says:

    How about old property upt to 5 ;10 or further old

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