Home Loan Tax Benefit

Last Updated 31st Oct 2020

Housing Loan Interest Deduction Mar 2020

  • Under Section 80C, you can claim deduction upto Rs. 1.5 lakhs for the principal repayment done in the financial year.
  • Under Section 24B, you can claim deduction for upto Rs. 2 lakhs for the accrual and payment of interest on home loan.
  • Under Section 80EEA, you can claim deduction for upto Rs. 1.5 lakhs for the interest payment of home loan availed during the financial year.
  • Under Section 80EE, you can claim deduction of up to Rs. 50,000 for the interest payment of home loan, if the loan is availed during the financial year 2016-17.
  • In case of joint home loan, each borrower can claim deduction of principal repayment (section 80C) and interest payment (section 24b) if they are also the co-owners of the property.

Housing Loan Tax Benefit

Tax BenefitsOn Principal Repaid On Interest Paid
First Home – Self Occupied Actual principal repaid subject to a maximum of Rs. 1,50,000 can be claimed as investment eligible for tax deduction under section 80C.
  • Actual home loan interest paid subject to a maximum of Rs. 2 lakh, if the construction of house is completed within 5 years from the end of the financial year in which loan is taken
  • If construction of house not completed within five years then Rs. 30,000 is tax exempt
  • Additional deduction of Rs. 1.5 lakhs for interest on home loan availed for purchase of Affordable houses of up to Rs. 45 lakh till March 2020. The benefit is available till 31st March 2021.
First Home – Rented/ Vacant (deemed to be let out property) Upto Rs. 1,50,000 eligible for tax deduction under Section 80 C. The deduction is available only if the property owner is staying in a different city for work.
  • Exemption on interest is capped at lower of two, a) Rs. 2,00,000 or b) actual interest paid for all properties owned by a taxpayer.
Second Home or Additional PropertyNone
  • Exemption on interest is capped at lower of two, a) Rs. 2,00,000 or b) actual interest paid for all properties owned by a taxpayer
Under Construction Property None
  • The interest paid can be claimed in equal parts in five financial years post completion or handing over of property within the overall annual limit of Rs. 2 lakh.

Current Housing Loan Tax Exemption

The list of tax exemptions you can claim for interest on housing loan in this year under various conditions are:

  • You can claim a maximum of Rs. 2 lakhs in case your property is self-occupied.
  • In case you have rented out the property, then you can claim the actual amount of interest accrued on your home loan without any limit.
  • In case of a joint home loan where the co-borrowers are also co-owners, the deduction is available up to the maximum limit for each one.
  • The maximum limit of Rs. 2 lakh is applicable in case of the under-construction property only if the construction is complete within 5 years from the financial year in which the loan is availed. If not, then the applicable deduction is limited to Rs. 30,000.

How to Claim Home Loan Tax Benefit Under Section 80C?

The steps to claim home loan tax benefit under section 80C are:

  • The tax benefit under section 80C can be claimed only while filing the ITR.
  • At the time of entering the details in your ITR form, make sure you have entered the correct values in the various income heads as applicable to you.
  • Next, in the section of deduction under section 80C calculate the tax deduction you want to claim.
  • Since section 80C includes various other deductions as well like, LIC premium, contribution to the provident fund. You need to calculate how much of all the deductions available under the section you can claim.

Tax Benefit under Section 80EE

  • The tax benefit available under section 80EE of Income Tax Act is available on home loan sanctioned between 1st April 2016 to 31st March 2017.
  • To claim this deduction, the borrower should not own any house on the date of loan sanction.
  • The deduction available under section 80ee is subject to a maximum limit of Rs. 50,000.
  • The deduction is available on the interest of the home loan.
  • The deduction is available for a home loan of Rs. 35 lakhs and below. Also, the value of the property should not exceed Rs. 50 lakhs.

Tax Benefit under Section 24B

As per section 24B of the Income Tax Act, you can claim deduction on the interest of the home loan, which is availed either for the purpose of constructing a new house or for the purchase of a residential property.

The deduction on home loan interest is allowed on an accrual basis. Thus, you can claim a deduction for the interest amount for the year, whether you have paid till now or not.

Income Tax Benefit on Home Loan for Owning Second property

If you have more than one property, and both are self-occupied, then only one will be considered as self-occupied for the purpose of calculating tax benefit on home loan and income from house property. You have the option to choose either of the property as self-occupied to claim maximum tax benefit.

The tax benefit available for self-occupied property for interest on a home loan is a maximum of Rs. 2 lakhs under section 24(b), while for lent out property or deemed to be lent out, the deduction is available for actual value without any limit.

Tax Benefit on Home Loan under Construction Property

For the property that is still under construction, you can claim the following tax benefit:

  • Deduction for principal repayment for up to Rs. 1.5 lakhs.
  • The deduction for interest amount can be claimed in five equal installments after the construction is complete within 5 years from the financial year in which the home loan is availed.

If the construction of property does not get completed within 5 years from the year in which the loan is availed, then the deduction available for the interest on home loan will be available only upto Rs. 30,000.

HRA and Tax Exemptions

In case you have availed a home loan and are also staying in a rented house then, you can claim both; tax benefit on home loan as well as House Rent Allowance deduction. However, an important aspect you need to note here is that you can claim the HRA benefit only if you are living in a rented house. You can claim HRA deduction up to lower of the following three:

  • 50% of your salary in the case of metro cities and 40% in the case of non-metro cities.
  • Actual HRA received.
  • The rent actually paid during the year minus 10% of your salary.

How To Claim Tax Benefit on Home Loan?

Follow these steps to claim tax benefit on home loan:

  • Calculate the tax deduction of interest on a home loan you have to claim.
  • Next, you can submit your home loan interest certificate to your employer, so that the deduction can be adjusted with TDS.
  • Otherwise, you can file the ITR yourself and submit the certificate as required.
  • For self-employed, submitting the certificate is not required. However, you should keep it with you as it can be asked by the IT department.

Tax Benefit on Home Loan (FY 2018 - 2019)

  • Deduction of up to Rs. 2 lakhs is available for self-occupied property.
  • Self-occupied property means, either you are living with your family, or your family is living in the house without you.
  • Deduction on repayment of principal is up to Rs. 1.5 lakhs.
  • In case the construction of the property is not completed within 5 years of availing the loan for the under-construction property, then the available deduction will be limited to Rs. 30,000 for interest on the home loan.

Housing Loan Tax Benefit (FY 2017 - 2018)

  • You can claim a deduction for principal repayment u/s 80C for up to Rs. 1.5 lakhs.
  • For under-construction property, no deduction is available for principal repayment.
  • For deduction of interest, the construction of property needs to be completed within 5 years from availing the loan. The maximum limit of deduction is Rs. 2 lakhs.
  • Interest accrued and paid during the construction can be claimed in 5 equal installments after the construction is entirely subject to a maximum deduction of Rs. 2 lakhs in a year.
  • For a second home, the deduction is available only on interest amount subject to the actual amount without any maximum limit.

FAQs - Tax Benefit

How do I claim tax benefits on the home loan?

You can claim tax benefits on a home loan either while filing your ITR or submitting the home loan interest certificate to your employer.

How much of a home loan is tax-deductible?

You can claim a deduction of up to Rs. 1.5 lakhs for principal repayment and up to a maximum of Rs. 2 lakhs for interest on home loan in a financial year.

Is Home Loan good for tax benefit?

Yes, the government wants you to take the loan and buy your own house. You can claim a deduction for principal repayment as well as for interest on your home loan.

What is the benefit of a home loan?

By availing home loans, you are not required to pile huge amounts of savings to purchase your own house. Choosing your own money instead of a loan can get your fund to lock at a place and can take years to recover. While by availing the loan, you can invest your savings in other areas, which will reap you higher benefit. Also, you can claim tax benefits available on the home loan.

What is the benefit of home loan transfer?

You have the option to transfer your home loan from one lender to another if the other one is providing a loan at a considerably lower rate of interest. It will help you bring down your EMI as well as overall interest outgo amount.

Can both husband and wife claim home loan interest?

If both husband and wife are the co-owners as well as co-borrower of the loan, then they both can claim deduction on home loan interest.

Home Loan News - Oct 2020
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