Income Tax Benefits for Assesses taking Home loan

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.

1. Section 24 (Income under head House Property)

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 :

• The loan has been taken for the purpose of Purchase/ Construction/ Repair/ Renewal/ Reconstruction of a Residential House Property.
• Deduction would be available for the person who has borrowed funds and not to the successor.
• Property should be self occupied.
• In case it is not self occupied or it is let out, then the deduction would be equal to the actual amount of interest paid/payable. (i.e. there is no maximum limit prescribed).
• In case a property has not been self-occupied by the owner by reason of the fact owing to his employment, business or profession, then the amount of tax deduction allowed under Section 24 shall be Rs. 2 Lakhs only.
• The above said deduction shall be available even if no amount is actually paid during the year by the assessee (i.e. it is available on accrual basis)
• But if the acquisition or construction is not completed within5 years from the end of financial year in which the loan was taken, then the interest deduction would be restricted to Rs 30,000

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

2. Section 80EE : Interest deduction (for 1st time buyers) on Home Loan

Conditions: 

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.

3. Sec 80C (Tax benefit on Home Loan)

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  catanvigupta2015@gmail.com)

(Republished With Amendments)