Buying a home is always a dream. It needs to be well planned and then executed so as to make the most of it. In fact it is quite an important step in Financial Planning. Managing to buy a home out of once own savings seems a faraway dream even for high net worth individuals. There is always a case of savings falling short of the property value. Thus, Home Loan comes to the rescue!
However, with the falling interest rate regime and the introduction of tax benefits on the interest paid on housing loan and repayment of principal amount, taking a home loan is not only easy but also a favored option. In fact, even if you have the money to buy it outright, availing a home loan may be mathematically a better option. Multiple tax benefits are one of the most important reasons for availing a Home Loan. In this article we will discuss Tax Benefits on Home Loan
Tax Benefits for Various Sections of Home Loan:
The tax benefits under various sections of the Income Tax Act not only attract people who need a loan put is also beneficial for people who can pay out of there on source of savings, as it provides them flexibility in payment and they need not do away with their liquidity.
Let’s first note the various income tax provisions under which tax benefits are available to the tax payers:
- Tax Benefits for Interest paid on housing loan: Repayment of housing loan is through Equated Monthly Installments (EMI) which consists of principal and interest component. Interest component of the EMI is allowed as deduction under the head ‘Income from Housing Property’, u/s 24 of the Income Tax Act. The amount permissible for deduction is Rs. 2,00,000/- . Further, in case the house against which loan is taken is given on rent, there is no cap on the amount of interest allowed as deduction.
- Tax Benefits for Repayment of principal on Home Loan: The principal component paid out of the EMI is permissible as deduction up to Rs. 1,50,000/- under section 80C of the Income Tax Act.
- Interest paid during the pre-construction period on Home Loan: Interest deduction cannot be claimed for under construction property. However, once the construction is completed, the amount of interest paid on the loan borrowed prior to completion, which is ‘Pre-construction interest’, can be claimed as deduction in 5 equal installments from the financial year in which construction is completed. Further, construction has to be completed within 5 years from the end of the financial year in which loan is taken.
Thus, the above deductions if availed prudently could benefit the tax payer and home loan becomes a favored option to putting in savings.
Also, keep in mind the following points while maximizing deduction benefits:
- Higher deduction in case of a Joint Home loan and ownership: In case both husband and wife are working, the deduction with respect to interest on home loan and repayment of principal can be claimed by both in proportion of their ownership share.
Let us understand with a simple illustration:
In the following cases, it is assumed that home loan of Rs. 50 lakhs is availed for a period of 20yrs @9.5%.
Case 1: The house is owned and Home loan is taken by a single holder.
Case 2: The house is jointly owned and Home loan is taken by both the partners.
The table below shows the amount of deduction that can be claimed in the first year.
| Case 1 | Case 2 | ||
| Loan Taken by | Single Holder | Wife | Husband |
| Property share | 100% | 50% | 50% |
| Loan Amount (In Rs.) | 5,000,000 | 2,500,000 | 2,500,000 |
| No. of Years | 20 years | 20 years | |
| Rate of Interest for Home Loan | 9.5% | 9.5% | |
| Equated Monthly Installment (EMI) per month (In Rs.) | 46,607 | 23,304 | 23,304 |
| Amount repaid Annually (In Rs.) | 559,284 | 279,642 | 279,642 |
| Interest Amount repaid (In Rs.) | 471,232 | 235,616 | 235,616 |
| Principal Amount repaid (In Rs.) | 88,052 | 44,026 | 44,026 |
| Tax Deduction that Can be claimed | |||
| Interest deduction u/s24 (In Rs.) | 200,000 | 200,000 | 200,000 |
| Repayment of principal u/s 80C (In Rs.) | 88,052 | 44,026 | 44,026 |
| Total deduction that can be claimed (In Rs.) | 288,052 | 244,026 | 244,026 |
| Total deduction claimed by the family | Rs. 288,052 | Rs. 488,052 | |
From the above illustration, you will notice that together a couple can claim additional deduction of Rs. 2 lakhs.
- Avail both Home loan deduction and House Rent Allowance (HRA) exemption: The deduction u/s 24 (Interest on home loan) and u/s 80C (Repayment of principal) can be claimed along with exemption of HRA. For e.g. A person has bought a flat in Pune and taken a home loan for the same. However, due to his job requirement he needed to shift to Mumbai in a rented apartment. In this case he can claim rent paid for the Mumbai Property as HRA exemption [u/s 10(13A)] along with deduction of interest and principal for the Pune property.
- Rent a home and avail higher deduction: There is good news to those who intend to buy a second home and rent the same as the amount of interest deduction on home loan which is capped at Rs. 2, 00,000/- in case of self-occupied property, is not applicable for the rented property. The same is illustrated below:
In the following cases it is assumed that the loan of Rs. 50,00,000/- is availed for a period of 20yrs @9.5%. In Case 1 the house is used for self-occupation. In Case 2, the house is rented out @20,000 per month. Deduction that can be claimed in the first year.
| Case 1 | Case 2 | |
| Loan Amount (In Rs.) | 5,000,000 | 5,000,000 |
| No. of Years | 20 years | 20 years |
| Interest Rate | 9.5% | 9.5% |
| Equated Monthly Installment (EMI) per month (In Rs.) | 46,607 | 46,607 |
| Amount repaid Annually (In Rs.) | 559,284 | 559,284 |
| Interest (In Rs.) | 471,232 | 471,232 |
| Principal (In Rs.) | 88,052 | 88,052 |
| Annual Rent Received @20,000 per month (In Rs.) | NIL | 240,000 |
| Less: Standard deduction of 30 % on Rental Income (In Rs.) | 72,000 | |
| Taxable Income (In Rs.) | NIL | 168,000 |
| Less :Interest u/s 24 (In Rs.) | 200,000 | 471,232 |
| Deduction that can be claimed as Loss on House Property (In Rs.) | (200,000) | (303,232) |
Thus, tax benefits on home loan makes a case to avail home loan and buy your dream home.
Please note with effect from financial year 2017-18 Govt has restricted the limit of set off of loss from house property against other heads of Income to Rs. 2 Lakh. Till financial year 2016-17 there was no restriction and assessee was allowed to set -off any loss from house property against other heads of Income.
Please note the restriction is placed on set-off of losses and not on the amount of home loan interest that can be claimed as a deduction under Section 24 for a rented house property, the losses which could arise on account of such interest repayment can be set off only to the extent of Rs 2 lakhs. Such loss in excess of Rs. 2 Lakh can be carried forward for upto 8 Assessment Years succeeding the year of loss.
(Republished With Amendments)
What a wonderful article sir thank you so much for this
SIR
I HAVE TWO HOUSES NOW . I AM PLANNING TO GO FOR THE 3RD HOUSE. CAN I GET INTEREST DEDUCTION AGAINST MY INCOME AAND REPAYMENT OF PRINCIPAL UNDER SECTION 80 C BENEFIT UNDER INCOME TAX ACT
i have bought a flat
i have paid total Pre emi from May 2012 to Apr 2017 = 459043 ,as far as my knowledge goes i cam claim return in 5 equal installment there 459043 / 5 = 91808 for 5 times
interest which i have paid from 01 apr 18-31 mar 19 interest componnet is 121702
therefore 121702(interest) + 91808 (Pre Emi) = 213510.
how much can i claim in my IT return?
is there any provision of claiming the prinicipal amount paid?
I have taken home loan from my company where I do job. This is my first property. Now I want to know that can I claim deduction under section 24b as only principal amount is deducted as EMI from my salary & the interest amount will be deducted after the whole principal amount is recovered. The amount of interest accrued is shown in my salary details.
I am a senior citizen and own a house property.I plan to build/construct an additional floor on the same house property for which planning to avail home loan.
“Question: under which sections can I claim tax benefit and for how much amount if
a) the newly constructed floor is Self occupied by me”
b) the newly constucted floor is Let out on rent by me. I still stay in the same house in the other floors.
Details of Loan:
Loan Amount : 10,00,000 Lac (INR)
Monthly EMI – 20,613 per month (INR)
Interest rate: 8.70%
Total interest which I will be paying in a period of 5 years
Duration of Loan : 5 years from 1 April 2018 to 31 March 2023
Expenses incurred before availing home loan in 2017:
Paid charges to MCD for approval of construction and floor plan : 1,00,000 (INR) in the year 2017 (Loan was taken from relatives for this amount. Interest paid to relatives @7% p.a for 2 years)
Home Loan taken in year 2018:
“Expenses incurred at time of taking home Loan:
Property clearance report charges: 6,000 (INR)
Property Valuation charges : 7,000 (INR)”
Hi,
I am planning to take a housing loan of Rs 20 lacs to buy a property from the current owner who got possession of the flat about 3-4 years back but never used the same.
Hope i can take tax deduction on my housing loan.
Thanks,
D.Naha
In first illustration, Total deduction claimed by the family for case 2 id displayed as Rs. 488,05 which is wrong. It should be Rs. 488,052. It seems like a typographical mistake.
myself and brother are suppose to buy one house. Both are employed. We need loan for 25 lakhs. Could please throw some light whether it is beneficial to have loan jointly or individually.
Hi
I have taken loan of Rs. 5800000 for period of 20 years at 8.35 interest.
House is let out property
My wife is owner and i’m co-owner in property
Can I declare complete interest under let out category and complete principal amount number my wife income tax.
I have taken a loan of 36 lakhs for construction of 1st and 2nd floors of existing ground floor…the LIC HFL has given as Extension of house in their i.t. provisional certificate. My employer is not willing to give 2 lakh interest exemption under sec.24. please clarify whether it is correct or not…
I had taken a house loan rs 100000/-for first floor extension of my house with the prior permission of munispal corporation , map etcAs I am a professional , how much tax benifit shall I claim under section 24 of IT
Pl remember it is a EXTENSION not RENOVATION
I have two home loan. one home is self occupied and another one is let out.
Please inform whether I am eligible for tax benefit on home loan interest of Rs.200000/- for self occupied home and Rs.200000/- for let out property i.e. for both home I am eligible for tax benefit of Rs.400000/- OR only Rs.200000/- in both houses for the financial year 2017-18 (AY 2018-19)
i have home loan since 2015. my wife is coborrower. but i am the owner of property. hence i am getting tax benefit. is it possible that my wife also gets tax benefit and how
Dear sir
I’m filing ITR1 for A.Y.2017-18
I have taken home loan also but
section 24 options is not coming in my form
What should i do for claiming home loan interest
Dear sir
I’m filing ITR for A .Y .2017-18
I have taken .
Home loan also but section 24 options is
not coming in my form.
What should i do for claiming home loan interest.
Dear Sir,
I am filing ITR for A. Y. 2017-2018. I have taken
Home loan also. But section 24 option is not coming in my form. What should i do, for claming home loan interest.
Sir, I had been on leave for two month due to which I did not get transport allowance and secondly transferred. initially i was getting 800 as transport allowance and now i am getting 1600 as transport allowance. so how much transport allowance i can claim for rebate means actual or 19200.
1. what is the deduction permissible for home extension loan?
2. what is the deduction permissible for home improvement loan?
Could you please help me understand how this tax benefit works if we have a joint home loan?
Are each of us entitled to 1.5lakh and 1lakh tax benefit on interest & principal on home loan?
Hello sir,
I have taken home loan in indore city for constructing the house,but I am staying in mumbai by rent also claiming house rent tax benefits because my job is at mumbai.now my parents are staying in my indore house.
So please tell me how I will get tax benefit on home loan
I am availing a home loan in which my mother is co borrower. I am paying EMI from my income. I am working in PSU. The property is in the name of my mother .
Can i take tax rebate?
Upto what amount in which section?
Hi
House purchased in my father-in-law and my wife name. For my wife contribution I have taken PERSONAL LOAN and bought the house in my wife name.
Should I claim personal loan repayment/Interest for tax exempt?
Sir, Kindly inform that a joint property (Flat) bought in the name of Father and Son and Home loan also taken jointly in the name of Father and Son, can we both, get the income tax benefit?. First name is son in property and Home loan. EMI is debited from the SB account of Son and Father. Possession is already taken.
Good Morning Sir, I have a query !!!
I have a home home loan and house is registered in joit names with my wife. She is a home maker and i am talking all benefit of EMI & interest.
Now we are expecting rent from the same house. Can wife alone take entire rent and other benefit by me?
Res. Sir,
I had bought a my first home at baroda on basis of home loan of Rs. 12,13,483 /- sanctioned with indiabulls housing finance on dated 01/09/2014 and the disbursed amount of loan is Rs. 9,20,323 /-. My loan term in 230 months and EMI start from 31/10/2014 of Rs. 8866 /-.
Now I had bought a my second home at Anand on basis of home loan of Rs. 35,00,000 /- sanctioned with My company ONGC on dated 11/08/2016 and the disbursed amount of loan is Rs. 21,00,000 /-. My loan term in 180 months and EMI start from 31/10/2016 of Rs. 24,172 /-.
My both home are under construction till date.
I am stay with my family at my work place Cambay with paying House rent Rs. 4500 /-
Now how to take a benifite of income tax return please guide me.
Sanjay patel 9426612137
thanks for this imp. tax knowledge.
Boss
Salary Can not be set off against any loss
Please check setoff and carry forward sections
Dear Sir,
One of our employee has reported loss from TWO House Properties as –
One is Self Occupied, on which he is paying interest on Housing Loan Rs. 200,000/- & Second House is Let – Out, on which also he is paying interest on Housing Loan Rs. 800,000/- for the financial year 2016-17. He has claimed Loss of both House properties in Form 12B against his Salary Income for the financial year 2016-17.
Now,
Q1. Whether as Employer, can we consider Loss of Both House Properties to deduct his TDS u/s 192B of Income Tax Act?
Q2. There is no option in TDS Return regarding disclosure of Rent Received/ Fair Rent, Tenant details etc. on Let – Out Property, than how can we disclose these details in TDS Return?
Other requirement of Section 24 of Income Tax Act has been complied with. Kindly advise us on priority basis.
With Regards –
JK SHARMA
very usefull for tax knowledge