Repayment of housing loan is through Equated Monthly Installments (EMI) which consists of principal and interest component. As the repayment comprises of 2 different components, the tax benefit on home loan is governed by different sections of the Income Tax Act and these are claimed as tax deductions under different sections while filing the Income Tax Return.
The Sections under which Tax Benefit on Home Loan can be claimed are explained below:-
Section 80C: Tax benefit on Principal amount on Home Loan
The maximum tax deduction allowed under Section 80C is Rs. 1,50,000. This tax deduction under Section 80C is available on payment basis irrespective of the year for which the payment has been made. The Amount paid as Stamp Duty & Registration Fee is also allowed as tax deduction under Section 80C even if the Assessee has not taken Loan.
However, tax benefit of home loan under this section for repayment of principal part of the home loan is allowed only after the construction is complete and the completion certificate has been awarded.
Section 24: Income Tax Benefit on Interest on Home Loan
The maximum tax deduction allowed under Section 24 of a self-occupied property is subject to a maximum limit of Rs. 2 Lakhs. Moreover, if the property is not acquired/constructed completed within 3 years from the end of financial year in which the loan was taken, the interest benefit in this case would be reduced from 2 Lakhs to Rs 30,000 only. This limit of 3 years has been increased to 5 years from Financial Year 2016-17 and onwards.
In case the property for which the Home Loan has been taken is not self-occupied, no maximum limit has been prescribed in this case and the taxpayer can take tax deduction of the whole interest amount under Section 24.
It is also important to note that this tax deduction of Interest on Home Loan under Section 24 is deductible on payable basis, i.e. on accrual basis. Hence, deduction under Section 24 should be claimed on yearly basis even if no payment has been made during the year as compared to Section 80C which allows for deduction only on payment basis.
Amendment in Budget 2017
In case of non-self occupied property, the interest paid is reduced from the Rent paid to arrive at the Income from House Property. In some cases, it may happen that the Interest paid is more than the Rent earned which will result in Loss from House Property. This Loss is allowed to be set-off with Income from any other head.
The Finance Act 2017 announced on 1st Feb 2017 has put a restriction to the maximum amount of Loss under head House Property that can be set-off from other heads of Income. From Financial Year 2017-18 onwards, Loss of a maximum of Rs. 2 Lakhs is allowed to be set-off with Income from other heads. The amount which is not set-off shall be carried forward to future years.
Let’ say Mr. A has house has a rental income of Rs 40,000 per month and he is paying home loan interest of Rs 10 lakhs p.a. He has income from remaining heads of Rs 12 Lakhs p.a.
Income from house property
|FY 2016-17||FY 2017-18|
|Less : Municipal Taxes Paid||10,000||10,000|
|Less: Standard Deduction(30% * 4,80,000)||1,44,000||1,44,000|
|Less: Interest on House loan||10,00,000||10,00,000|
|Loss from house property eligible to be set off||(6,74,000) (no limit)
(maximum limit allowed )
Home loan in Joint Names
Tax benefits get divided among co-applicants in case of a joint loan. The division takes place in the same proportion in which the asset is owned by each co-applicant. Each co-applicant can claim a maximum tax rebate of up to Rs. 1.50 lakh for principal repayment (Section 80C) and Rs. 2 lakh for interest payment (Section 24). The very first condition is the house property has to be bought by the individuals jointly, and this should be in their joint names. The share of each holder should be clearly mentioned so that there is absolute clarity on the percentage ownership of each co-owner.
Section 80EE: Income Tax Benefit on Interest on Home Loan (First Time Buyers)
Maximum tax deduction allowed under Section 80EE is Rs. 50,000. This incentive would be over and above the tax deduction of Rs. 2,00,000 under Section 24 and Rs. 1,50,000 under Section 80C.
Conditions for availing deduction under section 80EE:-