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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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. Rashmi says:

    How do I get interest exemption for two home loans ?

  2. Pkumar says:

    dear sir
    I am confused wrt to principal repayment on let out property . In my previous company tax exemption was considered for principal repayment on home loan but in new company they said since it is let out I can’t claim principal repayment of my home loan. I have the possession . I have declared the rental income as well . Can you please clarify if I can claim tax exemption on principal repayment on my letout property. I have read in different websites which says yes tax exemption is available and in other sites that it is not possible . Sincere thanks in advance .

  3. Parama sarkhel says:

    Dear Sir,
    I have a query. I Have 1 home loan from UBI. I live in Kolkata. If I take another home loan from SBI can i get the benefits of two different interest under sections 24(b)? please advice me…

  4. Sunil A says:

    Sir,
    I have purchsed one 2bhk flat at Pune in the name of my wife both are working in Govt Service. who will get the Income Tax benifit to my wife or husband can claim the housing loan benifit. the loan amount is deducting from my account. please clarify me

  5. jitendra kumar says:

    i have a home(registry) in the name of my wife. we have take a loan both (joint loan).can both we take rebate in interest and principal amount equally?

  6. chitmalwar s r says:

    i have taken two housing loans from national bank,can i get the benefits of two different interest under sections 24(b) upto 2 lacs. please advice me…

  7. ASHOK KHADE says:

    I have taken home loan and repay it in 2015. Now i am staying at Pune in my home and want to purchase another home and need to take home loan and i will give this home on rent at this time can i enjoy the benefit of this 80c & Section 24(b) of Income Tax Act ???

  8. Srihari Kandra says:

    Dear Sir,

    I have a query. I Have 2 home loans on two houses.
    1st one is in Hyderabad, 2nd one is in Greater Noida, UP.
    Both Houses are given on Rent.
    I am working in Mumbai….

    Can I get Tax benefit on Interest paid for both home loans under 24(b)?

  9. Manish Arora says:

    Dear Sir,

    i have paid Rs.300000/-(120000+180000) as Installment for Home Loan in 2014-2015. Home is with my wife and my Name Can we Both Take Income Tax Benefit of Rs.120000/-

    Regards
    Manish Arora
    9818151576

  10. Babu.C says:

    Dear Sir,
    Me and my wife both are working in hyderabad (both in 30% tax slab) and planing to buy our first house as resale property(2BHK flat) for 26L in sub-urbe in Hyderabad. I am confused in following two options.

    (1)We make a payment from own funds as much as 20L and raise remaining 6L from friends/relatives.

    (2) 11L downpayment and opt for Housing loan Loan up to 15L for 7 years (EMI around 25,000/ month @10.15%).

    As we both are Salaried and from tax perspectitive which would be the best option. i.e not claiming tax rebate under to income tax (limit on principle and interest on housing loan)OR claim tax benifit by taking housing loan.
    Thanks for your guidance.
    Regards,
    Babu

  11. s.chandra says:

    Sir, I have been allotted the flat from Gr Noida authority under BHS13 (BUILT-UP HOUSES SCHEMES. I am paying the installment (six monthly) as per payment schedule of Gr Noida Authority. Payment schedule (installment) clearly indicates the principal amount and interest amount. The total interest amount deposited is more than 1.5 lacs. My question is : Can I avail Income tax rebate? Please advise and tell IT clause and sub clause of the same to convince our Finance Deptt.

    Regards,

    S. Chandra

  12. ashok gohel says:

    Sir, I have taken loan from my office for residential property. i am residing in this property. I have taken another loan from Corporation bank for another flat in Noida Extension. The possession of this flat has not been given and it will given most probably in next one year. Kindly advise whether I can avail tax benefits on account of both the loans. If yes what are the benefits.

    Thanks

  13. Gaurav says:

    Can you please refer to the IT document which states that principal repayment under 80C can be claimed only if you have possession of the property.

  14. Subhash Chahar says:

    Sir, I have taken loan from my office for residential property. i am residing in this property. I have taken another loan from Corporation bank for another flat in Noida Extension. The possession of this flat has not been given and it will given most probably in next one year. Kindly advise whether I can avail tax benefits on account of both the loans. If yes what are the benefits.

    Thanks

  15. Senthilkumar says:

    Sir,
    I have aviled HBA from TNEB. I got the first payment of Rs. 7,50,000/- on march 2011 and got the second installment on august 2011. The Deduction of the Loan started from March 2012 (Rs. 23447/- p.m).I have been paying the principal amount till now. I have not claimed the IT benefit of accrual of interest till date. Can I claim it for the current financial year.How to work out the accrual of interest. Please help

  16. rosalie says:

    I have availed hsg loan in dec2010 and got possession in jan2015
    please let me know how much interest benefit can i get for the past years and how much for this year
    thanks

  17. jatinder mankotia says:

    Dear Sir,i have been sanctioned housing loan which is under disbursement & the house is still under costruction. however the repayment of the loan has already been started towards the payment of principal . Now please clarify whether this payment of principal amount will be eligible for tax benefitsunder section 80c during this FY.

  18. shekhar srivastava says:

    i have purchased constructed flat vid possesion in the year 2011 & borrowed loan in same year.In the year 2014-15, i will get rebate on interest component Rs 2 lac or 1.5 lac,plz confirm.

  19. Sanjay Tiwari says:

    Sir, I have taken House Building Allowance from Railway in year 2012-2013. After taking possession, monthly deduction from my salary for principal amount was started during year 2013-14 but deduction from salary for interest on HBA will start after full recovery of principal amount of HBA i.e june 2018. Question is that Whether may I take income tax rebate under section 24(b) for interest on HBA on accrual basis in 5 equal installments for next five years in year 2014-15 and onward or after actual deduction of interest from my salary during June 2018 and onward. kindly advise me.

  20. Satish says:

    Sir,
    I want to take loan against housing property and want to use for my personal family needs (not for purchase of residential property). Can I reduce/claim the deduction from my annual income (inclusive of saving bank/fixed deposit interest) for the interest which I have required to pay for this loan against property?

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