Tax Benefits on Repayments of Installment of House

To encourage enhanced investment in house properties, the Government has increased the tax benefits on home loan. It helps you to reduce your taxable income, thereby paying fewer taxes.

Section 80C provides for deduction of the amount paid as part payment or any installment in respect of home loan. Home loan should be for purchasing or constructing a residential house.

Who can claim deduction u/s 80C for repayments for purchase of property?

The deduction under section 80 C is available only to:

• An individual and
• Hindu Undivided Family

What are the conditions for claiming deduction under section 80 C for repayment of installments for purchase of House?

Deduction u/s 80C for repayments towards installments is available only if construction of house is completed. It is important to note that most of the companies are allowing deduction u/s 80C during construction period as well. But, majority of Tax professionals are of the opinion that deduction u/s 80C is available only if construction of house has completed. In order to avoid any tax complications or queries from Income Tax authorities, it is advisable to avail tax benefits u/s 80C only after the construction of house.

What is the Maximum amount of eligible deduction u/s 80C?

The maximum amount of tax benefits u/s 80C towards repayments of Home loan that can be claimed as deduction is Rs. 1,50,000. However, the overall deduction allowed under section 80C including the other components such as PPF, LIC, NSC, pension schemes, repayment of home loan principal, etc. should also not exceed Rs. 1,50,000.

What payments qualify as deduction?

Any payment made by the individual or HUF towards the repayment of principal portion of the home loan for purchase or construction of a residential house property is eligible for deduction.

Only, the principal portion of the repaid amount can be claimed for deduction, but not the interest. The repayment includes installments or part payments. Such payments can be made to or towards:

1. Development Authority: Every city has its development authority. A few are stated as follows:

• Kanpur has Kanpur Development Authority (KDA)
• Delhi has Delhi Development (DDA) Authority
• Lucknow has Lucknow Development Authority (LDA)

Nowadays,the development authorities have started allotting plots, houses, etc. on instalment basis. Therefore, any amount paid by the individual or HUF by way of part payment or installment of loan to such a development authority for allotment of houses are eligible for deduction.

2. Housing Board: Housing boards are established by States. A few are stated as follows:

• Haryana has Housing Board
• Uttar Pradesh has Uttar Pradesh Housing Board
• Rajasthan has Rajasthan Housing Board

So, amount paid by the individual or HUF by way of part payment or installment of loan to such housing board for allotment of houses are eligible for deduction.

3. Co-operative Society: Many co-operative societies allot land or houses to its members. In turn, members have to make payments in part or installments over the years. Such part payments or installments qualify for deduction under section 80C.

4. Stamp Duty and other Expenses: When a property is transferred, a certain amount has to be paid in court as stamp duty and registration fee. Transfer of property also involves other expenses such as legal expenses. These expenses can also be claimed for deduction.

5. Home loan from Employer: It may be a case that an Employer may provide assistance to its Employee for acquiring a house property. The employee in turn will have to make payments to the Employer over a period of time for repaying the assistance. They are considered a part of deduction.

Please note that deduction under Section 80 C is not allowed if Employer is a Private Limited Company or a Proprietorship Firm or a limited Liability Partnership Firm.

On the contrary, if the Employer is a Public Limited Company or a Public Sector Company or a University established by Law or a College affiliated to such University, such deduction is allowed to an individual.

6. Housing loan from Banks / Financial Institutions: You can borrow money from any Bank, NHB, LIC, Central Government or State Government or any Public Company carrying on the business of providing long term loan for purchase or construction of house property. Repayment of such loan qualifies for deduction under section 80C. Only, the principal portion of the repayment amount is eligible for deduction.

NOTES

Although, the repaid amount qualifies for deduction, but it does not cover the following:

• Payment of any amount for becoming a member of any co-operative societysuch as admission fee, initial deposit that one has to pay to become a member, or
• Payment for becoming a Shareholder of a Company like cost of share subscription, etc., or
• Payment for any repairs or renovation, addition or alteration to the house property is not eligible for deduction, or
• Payment of expenses for which deduction is allowed under Section 24, which means, interest on borrowed loan and municipal taxes

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 and can be set off against Income under the head House Property.

The article has been written by mytaxcafe.com, which helps people to e-file their income tax return

(Republished With Amendments)