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.

Loan for construction eligible for deduction under Section 80C

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 of Interest on Home Loan

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 Deduction under section 24

Home LoanThe 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.

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

(Republished with amendments)

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One response to “Buy home to reduce Income Tax burden”

  1. Pushkar Saluja says:

    I have a home loan with emi option NOT pre emi….house is yet to be possessed…can i claim Tax rebate as I m paying emi NOT pre emi

  2. Pawan Mishra says:

    Dear sir,
    I am goverment teacher. I want to purchase a land. Can i take any tax benefit if i will take home loan for the same?

  3. AMit says:

    Sir, i availed home lon in march 2010..possession given in June 2014. AS per rule i am eligible for tax rebate for only Rs. 30000.
    What rebate i shall get in year 2014-15. and in year 2015-16. Will it be Rs. 30000/- till i repay my outstanding amount.

    kindly advice…

  4. varun says:

    If we sell land which name of our private ltd company arround 1 crore .company have two director who have 100 % share holding in company

    Can we transfer the 100% amount against 100% share holder in our saving a/c and personal use. If company have not any liability for others.
    How much amount have to we bear for tax
    Which bond we can buy

    And any saving which help for tax benefit

    Regard
    Varun

  5. varun says:

    If we sell land which name of our private ltd company arround 1 crore .company has two director who have 100 % share holding in company

    Can we transfer the 100% amount against 100% share holder in our saving a/c and personal use. If co
    How much amount we bear for tax
    Which bond we can buy

  6. Sanjay Redkar says:

    I am Salaried employee. I have purchased flat in July 2009 and taken housing loan for the same.My total investment and Housing EMI is comming near Rs. 75000.00. Can i repay Rs. 25000.00 towards housing loand and claim under 80C.

  7. vijayakumar says:

    Yes you can

  8. Pratik says:

    Sir me and my friend are planning to buy only land and jointly, are we both eligible for income tax exemption of 1 lac principal and 1.5 tax exemption.

    Kindly advice

  9. Gulshan nagpal says:

    Need help and check here- I have purchased a Flat which is in constrcution phase and for last one year I am paying monthly EMIs from my salary. So am I eligible for this tax benefit? if yes, is it under section 80C? But for 80C I think upper limit is 100000 INR and this section includes ” PF , LIC/ NSC saving also?

    This information from your end will be really helpful for me to include that in my scope of IT rebates. thanks

  10. sandeep says:

    Sir,

    I want to know if the property has been registered on my name but I am still paying as Pre EMI interest whether I can take the benefit of entire interest int eh same year or it will be adjusted in 5 years.

  11. IBRAHIM PK says:

    Dear Sir,

    In a case where a person holds more than one house property and avail loan for purchasing, constructing or renovating the  same,  whether the principal amount paid towards loan other than self occupied propery is eligible for  deduction u/s 80C. 

    Yours faithfully,

  12. samba siva rao says:

    yeah …. you can get principal upto 1lacs and interest upto 1.5 lacs every year until your loan amount is paid ….. these limits are available for every person even if house is brought jointly …. both the persons will get these deductions separately for single property

  13. Gurudatt Kulkarni says:

    Dear Sir

    We had purchased a falt in Pune. Me and my wife is co-onwer where shares of each is not been mentioned in the agreement. However my wife is housewife and has no income source. All the EMI gets deducted from my sole salary.

    Am I eligible to get 100 % tax benefit in this case i.e. Principal upto 1 Lacs and Interest upto 1.5 lacs from my salary.

    Please advice. Also please guide if any written law or notifications in this respect is available.

    Waiting you early reply.

    Thanks in advance

    Gurudatt Kulkarni

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