Housing Loan Deductions under Income Tax Laws

Buying a house is a dream for many and involves a lot financial planning. Home Loan journey can be quite eventful and confusing. Flying to your new place every day seems like an exciting way to live. But, even birds need a place to come to a nest of their own. Therefore, here i am to guide you on every step.

Funds provided to an individual/entity for construction, extension or renovation of a residential property is called a Home Loan.

1. Deduction under section 80C

Your home loan’s Principal amount, stamp duty, registration fee, or any other expenses is a part of Section 80C of the Income Tax Act. Under this, an individual is entitled to tax deduction on the amount paid as repayment of the principal component on the housing loan. In this, an amount upto Rs.1,50,000 can be claimed as tax deductions, means, you can reduce upto Rs.1, 50,000 from your taxable income, and it is available for Individual and HUFs. But, the house property should not be sold within 5 years of possession. Otherwise, the deduction claimed earlier will be added back to your income in the year of sale.

2. Deduction under section 80EE

This section provides additional deduction in respect of interest on loan taken by Individual for acquisition of residential house property.

• Conditions to be complied with:

1. Value of House is less than or equal to Rs.50 Lakhs.

2. Loan sanctioned is less than or equal to Rs.35 Lakhs

3. Loan should be sanctioned during the previous year 2016-17

4. The assesse should not own any residential house on the date of sanction of loan.

• Quantum of Deduction :

Maximum deduction allowed under this section is Rs. 50,000. It is over and above the deduction of Rs.2,00,000 available under section 24 for interest paid in respect of loan borrowed for acquisition of a self-occupied property.

3. Deduction under section 80EEA

An Individual who has taken loan for acquisition of residential house property, interest payable on such loan would qualify for deductions under this section.

• Conditions to be complied with:

1. Stamp Duty Value of house is less than or equal to Rs.45 Lakhs.

2. The assesse should not own any residential house on the date of sanction of loan.

3. Loan should be sanctioned during the previous year 2019-20.

4. The Individual should not be eligible to claim deduction u/s 80EE.

• Quantum of Deduction :

Maximum deduction allowed under this section is Rs.1,50,000. It is over and above the deduction of Rs.2,00,000 available under section 24(b) for interest paid in respect of loan borrowed for acquisition of a residential house property.

In respect of self-occupied house property, interest deduction u/s 24(b) is restricted to Rs.2,00,000. In case of, let out or deemed to be let out property there is no limit u/s 24(b).

• No deduction under any other provisions

The interest allowed as deduction under this section will not be allowed as deduction under any other provisions of the Act for the same or any other assessment year.

4. Section 24(b)

Interest payable on loans borrowed for the purpose of acquisition, construction, repairs, renewal or reconstruction can be claimed as deduction.

Interest payable on a fresh loan taken to repay the original loan raised earlier for the aforesaid purposes is also admissible as a deduction.

• Interest for Pre-occupation period

Pre –construction period is the period prior to the previous year in which property is acquired or construction is completed.

So, the pre-construction period interest can be claimed as a deduction over a period of 5 years in equal annual instalments commencing from the year of acquisition or completion of construction.

• Interest for the period in which construction is completed/property is acquired

Interest relating to the year of completion can be fully claimed in that year irrespective of the date of completion /acquisition.

• Quantum of Deduction

Condition	Deduction
(a). Where the property is acquired, constructed with capital borrowed and such acquisition and construction is completed within 5 years from the end of the financial year in which the capital was borrowed	Actual Interest payable in aggregate for one or two self-occupied properties subject to maximum of Rs.2,00,000, if certificate from lender specifying interest payable is obtained.
(b). When the property is repaired, renewed, or reconstructed with capital borrowed	Actual Interest payable in aggregate for one or two self-occupied properties subject to maximum of Rs.30,000.

Note: The total interest deduction under (a) and (b) cannot exceed Rs.2,00,000, in case of self-occupied property only.

Note: In case of let-out or deemed let out property, the ceiling limit in respect of interest on loan borrowed does not apply AS IT IS prescribed for self-occcupied property ONLY.

Note: Deduction u/s 24(b) for interest is available on accrual basis.

5. Deduction in case of Joint Home loan

In this case, you can claim higher tax benefit, but to claim this deduction they must also be the joint-owners of the property taken on loan.

In this case, each holder can claim a deduction for home loan, means that the limit prescribed is applicable to each joint owner separately.

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