As we are in the middle of the financial year , it is time to start planning your tax saving strategies. A house can also be used to reduce the tax liability to a certain extent. Under Section 24 of the Income Tax Act, deduction in respect of interest paid up to Rs 1.5 lakhs (2 lakh from AY 2015-16) per annum on a home loan is allowed.
A loan availed for the construction of a residential property, purchase of a residential property, extension of an existing house, and major repairs and renovation of a house are eligible for tax benefits. Under Section 80C of the Income Tax Act, a home loan borrower can claim a deduction of up to Rs 1 lakh (1.50 lakh from AY 2015-16) from his taxable income on repayment during the year along with specified savings instruments like provident fund.
In case there are co-owners to a property, each of them can claim tax benefits separately , in proportion to their share holding in the property. If the share holding is not mentioned in the purchase deed, they can execute an agreement on a stamp paper, mentioning the shares in the property, and claim tax benefits separately . Co-owners can thus claim a deduction of up to Rs 2 lakhs per annum separately, on interest paid towards a self-occupied house, and also up to Rs 1.5 lakh per annum towards principal amount repaid.
The entire pre-EMI interest amount (the interest paid during the construction period ) is allowed as a deduction under Section 24 of the Income Tax Act equally over five years (20 percent of total interest paid per annum), starting from the year in which the construction is completed.
However, if one avails a loan only for a land purchase, he is not eligible for any tax benefits. In the case of a composite loan (for land and construction ) and the house construction is completed within five years, only after completion of the construction will one be eligible for the tax benefits.
If either of these calculations shows a loss, this loss can be set off against your income from other heads. 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.
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(Republished with amendments)