As the financial year comes to an end, 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, interest paid up to Rs 1.5 lakhs (2 lakh from AY 2015-16) per annum on a home loan can be set-off from salary or business income, for a self-occupied property.
Loan for construction eligible for deduction
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.
All co-owners eligible for deduction
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.
Pre-EMI qualifies for benefit
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 three years, only after completion of the construction will one be eligible for the tax benefits.
Image courtesy of Stuart Miles at FreeDigitalPhotos.net
(Republished with amendments)