EMI on Home loan has two components. One component is repayment towards principal amount of loan and the other is interest portion. The article will describe regarding the tax benefit an assessee can avail on making payment of EMI. Loan can be taken for construction or purchase or repair or renewal or reconstruction of residential house or unit/flat.

(i) Tax benefit in regard to principal component of EMI

 An Individual or HUF can get a benefit upto Rs. 1,50,000/- in a year under Section 80C of the IT Act, 1961 by way of deduction from taxable income.  To get the deduction, EMI has actually to be paid by the assesse on or before the last date of the previous year.

Consequence of transferring the house or unit/flat before the expiry of 5 years from the end of the financial year in which possession of such property is obtained by assessee.

The aggregate amount of deductions of income under section 80C as claimed by the assesse during earlier year or years shall be considered as deemed income of the assesse in the financial year in which property has been transferred by him and taxed accordingly.

(ii) Tax benefit in regard to interest component of EMI

DEDUCTION U/S 24 (b) of THE INCOME TAX ACT, 1961

(a) Self occupied residential property or when property is vacant because the assesse is residing in other place out of compulsion arose due to his business or profession or employment:

Maximum Rs. 2,00,000/- can be taken as deduction in every year under section 24 (b) of the Income Tax Act, 1961. Therefore, there arises a loss from house property.

To claim deduction for a maximum amount of Rs. 2,00,000/- following three conditions must be fulfilled by the assesse:

(i) Loan has been taken on or after 01.04.1999.

(ii) Loan has been taken for acquisition or construction of the property.

(iii) Such acquisition or construction is completed within 5 years from the end of financial year in which loan was taken.

Note: The assesse has to keep in his hands interest certificate issued from lender.

Where all the above three conditions are not fulfilled, the assesse is eligible to claim a deduction of Rs. 30,000/- only in each year. Suppose loan has been taken for repair of house then deduction under section 24(b) is limited to Rs. 30,000/- only.

(b) Let out property or deemed to be let out property: Entire interest amount can be claimed as deduction under section 24(b).

(c) Interest during pre-construction period: Interest arised during the pre-construction period is eligible for deduction under section 24 (b) in five equal instalments starting from the financial year in which construction or acquision of property is completed.

DEDUCTION U/S 80EE OF THE INCOME TAX ACT, 1961

In addition to section 24(b) an individual can claim an additional deduction of interest for a maximum amount of Rs. 50,000/- in every year under section 80EE provided following conditions are satisfied:

(i) Loan has been sanctioned by bank or other financial institutions during the financial year 2016-2017.

(ii) The loan is for the purpose of acquisition of residential house property.

(iii) The amount of loan sanctioned does not exceed Rs. 35 lakh.

(iv) The value of residential house property does not exceed Rs. 50 lakh.

(v) The individual does not own any residential house property on the date of sanction of loan.

DEDUCTION U/S 80EEA OF THE INCOME TAX ACT, 1961

In addition to section 24(b) an individual can claim an additional deduction of interest for a maximum amount of Rs. 1, 50,000/- in every year under section 80EEA provided following conditions are satisfied:

(i) The individual is not eligible to claim deduction U/S 80EE.

(ii) Loan has been sanctioned by bank or other financial institutions during the financial year 2019-2020.

(iii) The stamp duty value of residential house property does not exceed Rs. 45 lakh.

(iv) The individual does not own any residential house property on the date of sanction of loan.

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