CA Tanvi Gupta
So, here we are talking about the various tax benefits provided by the Income Tax Act, 1961 to the taxpayers who have taken housing loan. There are various deductions available under the Act for the payment of loan amount (principal) as well as the interest component the same includes home loan interest deduction under section 24, Section 80EE : Interest deduction (for 1st time buyers) on Home Loan, and Sec 80C (Tax benefit on Home Loan).
First we will start with the Interest amount.
This section allows a fully fledged deduction for interest paid on housing loan upto Rs. 2 lakhs (Earlier it was Rs. 1.5 lakhs) on completion of following conditions :
This section also deals with the treatment of Pre Acquisition Interest i.e. Interest paid by assessee relating to the period when the construction is still on the go.
Here 2 cases are possible:
a) Loan is for repair/renewal/reconstruction: No deduction
b) Loan is for purchase/construction: Deduction shall be available for the interest paid by the assessee, but it will be available from the year in which the construction is completed and that too in 5 equal installments.
Example: Loan taken by Mr. Y in April 2016 for Rs. 100000 for the construction of house. He is paying Rs. 1000 as interest on the said amount every year. Now the construction is completed in April 2018. How will he claim the interest deduction?
Solution: Pre acquisition period – April 2016 to April 2018
Interest paid during this period -1000*2 = Rs. 2000
Since the construction is completed in April 2018 therefore we will claim the deduction while filing the return for this year.
So, available deduction will be equal to the interst paid in FY 2018-19 plus 1/5 ofpre acquisition interest
Available deduction = 1000 + 2000*1/5 = 1000 + 400 = Rs.. 1400
a) Applicability : FY 2016-17 onwards
b) Eligible Assessee : First time buyer of House
c) Value of property < Rs. 50 Lakhs
d) Value of loan < Rs. 35 Lakhs
e) Loan sanction date : 1-4-2016 to 31-3-2017
f) Amount of deduction : Rs. 50000 (whether self occupied or not)
Note: This deduction is in addition of all earlier deductions on interest on home loan.
That’s all for Interest Component.
Now comes the Principal repayment. For this we will study Section 80C of the Income Tax Act, 1961.
Eligible Assessees : Individual/HUF
Max. deduction : Rs. 1.5 lakhs
Lock in period : 5 years
Note – In case the Assessee transfers the house property on which he has claimed tax deduction under Section 80C before the expiry of 5 years from the end of the Financial Year in which the possession has been obtained by him, then no deduction and tax benefit on Home Loan shall be allowed under Section 80C. The aggregate amount of tax deduction already claimed in respect of previous years shall be deemed to be the Income of the Assessee of such year in which the property has been sold and the Assessee shall be liable to pay tax on such income
Accrual/payment basis : Payment basis
Eligible payments – Principal amount repaid, stamp duty paid, registration fee paid
Note- Payment made for Stamp Duty & Registration Fee is allowed as tax deduction under Section 80C even if the Assessee has not taken Loan
Pre-acquisition period payment – No deduction. Deduction shall be allowed only after completion of construction.
(In case of any queries and suggestions, please feel free to write at email@example.com)
(Republished With Amendments)