Tax Benefit on Home Loan

Last Updated 31st Mar 2020

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Section Tax Deduction Maximum Amount
Section 80C Principal amount including registration charges and stamp duty Rs. 1.5 lakhs
Section 24 Interest amount Rs. 2 lakhs (for self-occupied) No limit for let-out property
Section 80EEA Additional interest dedcution for first time home buyers (Loan availed between 01.04.2019 – 31.03.2021) Rs. 1,50,000

Budget 2020 Highlights

Home Loan Tax Benefit

Income Tax Act provides for various deductions and exemptions related to the home loan. These deductions serve as a cushion for people to avail of a home loan when they want to buy their own house. The tax benefit on home loan is available for both principal and interest payments under various circumstances.

Tax BenefitsOn Principal Repaid On Interest Paid
First Home – Self Occupied Actual principal repaid subject to a maximum of Rs. 1,50,000 (Rs. 2 lakh for senior citizens) 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 (Rs. 3 lakh for senior citizens) if house construction 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 (Rs. 2 lakh for senior citizens) 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.

Tax Benefit on first residential property

Deduction under Section 80C for Principal Amount (self-occupied, rented or vacant)

  • Principal repayment of up to Rs. 1.5 lakh (Rs. 2 lakh for senior citizens) can be clubbed under the overall limit for tax saving instruments eligible under Section 80C to claim tax benefit of upto Rs. 50,985 per annum
  • Deduction available for purchase or construction of first residential property which is self-occupied or is rented as the taxpayer has to live in a different city due to his work
  • Any amount paid towards partial or full prepayment of home loan is also eligible for tax benefit

Deduction under Section 24 for Interest Amount

  • Annual interest component of up to Rs. 2 lakh (Rs. 3 lakh for senior citizens) can be claimed as deduction against income under section 24
  • Tax liability can be reduced by upto Rs. 67,980 depending upon your tax slab
  • Till March 2021 interest on home loan deduction for affordable houses of up to Rs. 45 lakhs is available as additional deduction of Rs. 1.5 lakhs for home loans availed between 1st April 2019 to 31st March 2021.
  • Available for purchase/ construction/ repair/ renewal/ reconstruction of a residential house property
  • Benefit available only for self-occupied property
  • Deduction is available on an accrual basis and not on a payment basis. Hence, deduction under Section 24 can be claimed on a yearly basis even if no payment has been made during the year but interest has accrued

For rented or vacant property

  • Vacant property - As per Income Tax rule (Section 24), you will be required to account for deemed rent on the property as taxable income. Deemed rent is notional rent based on market rental values in the vicinity. Interest paid on loan taken to buy the property can be set off from the taxable income. In FY16-17 (AY 17-18), 100% of the interest is eligible for deduction on such properties. Starting from current FY17-18 (AY18-19) and as applicable for FY18-19(AY19-20), the interest benefit cannot exceed Rs. 200,000 per individual.
  • Property is not self-occupied for reason of employment, business or profession in different place or other city - As per Income Tax Rule (Section 24) tax deduction allowed is capped at Rs. 2 Lakh.
  • Property is part self-occupied and part is rented out - The interest must be split in proportion of the size of the two parts and tax benefit shall be split proportionately.

For under construction property before possession

According to Section 24 of Income Tax Act, you can claim deduction against the interest amount that you have paid on your residential property during the pre-construction period.

  • Similar Deduction not available on principal repayment under Section 80C, for payments done during pre-construction period
  • Total interest paid during the pre-construction period can be claimed as tax deductible in five equal installments during five successive years from the year in which construction is completed and property is handed over to you.
  • Total allowable deduction stands capped at Rs. 2 lakh per year for self-occupied house.
  • Starting from current AY 2018-19 and as applicable for FY18-19(AY19-20), a limit of Rs 2 lakh has been placed on amount of total interest that can be claimed against income from let out or deemed to be let out property. Prior to this, there was no limit on interest that can be claimed as tax deductible in case of let out property and deemed to be let out property.
  • Tax deduction during construction period is not allowed for loan taken for repair or renewal of a residential property.

How to avail tax exemption

  • In case you own more than 1 property, one of which is self-occupied and others are rented out or lying vacant, till Assessment Year 2016-17, entire interest paid on such property can be set it off from rent received or deemed rent on such properties
  • In case the interest on home loan together with other deductible expenses (such as repairs, house tax, standard deduction of 30% on rented property etc) is higher than rental income/ deemed rental income, the loss can be adjusted against other income heads including salary income, business income, interest income; thus reducing the overall tax liability.
  • In case there is unabsorbed loss even after these adjustments, same can be carried forward for up to 8 years to be adjusted against taxable income in future years.
  • The maximum set off for interest paid on all properties, including self-occupied, rented and vacant properties has been capped at Rs. 200,000 per taxpayer, irrespective of the number of properties owned by the individual.

Joint home loan tax benefit: for co-applicant, co-borrower and joint owner

If the home loan that you have taken is in joint names then you can save more tax as compared to when you have taken home loan individually.

  • Each applicant and the co-applicants (any number) can avail tax benefit individually for a property in which they are joint owners
  • Each applicant and co-applicant can separately claim a maximum tax deduction of Rs. 1.50 lakh per annum for principal repayment under Section 80C and Rs. 2 lakh per annum for interest payment, under Section 24. However, the total tax benefit by all joint owners cannot exceed the total principal repayment and interest payment during the year.

GST on houses under PMAY Pradhan Mantri Awas Yojana

The GST rates for homes purchased under the PMAY (Pradhan Mantri Awas Yojana) or Credit Linked Subsidy Scheme (CLSS) ar set at 8%. Under-construction homes that are a part of CLSS will now be charged GST at 8 percent. Those eligible for CLSS under PMAY, will be eligible for this tax benefit. The lower rates of 8% will be applicable on houses constructed or acquired under the CLSS for Economically Weaker Sections (EWS) / Lower Income Group (LIG) / Middle Income Group-1 (MlG-1) / Middle Income Group-2 (MlG-2) under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana (PMAY Urban). The inputs and the capital goods used in the construction of houses attract a GST of 18% or 28%. As opposed to this, the affordable housing projects will be charged 8% after deducting one-third of the amount charged for the house towards the cost of land. The builders or developers have enough incentive to comply with the system, while the tax burden on borrowers stands reduced.

FAQs

What deduction is available under section 80EEA of the Income Tax Act on the home loan?

Under section 80EEA of Income Tax Act, an additional deduction of Rs. 1,50,000 is available to individuals whose loan is sanctioned between 01.04.2019 to 31.03.2021, and their loan amount is Rs 45 lakhs or less.

How much of the home loan principal is tax-deductible?

You can claim a maximum of Rs. 1.5 lakhs on home loan principal repayment along with other deductions available under section 80C of Income Tax Act.

How much tax benefit can be claimed on housing loan interest?

You can claim maximum deduction up to Rs. 2 lakhs under section 24 of the Income Tax Act for home loan interest payment. Along with additional deduction of Rs. 1.5 lakhs for affordable houses upto Rs. 45 lakhs till March 2021.

Who is eligible to claim tax deductions on home loans?

Any individual who has availed home loan to construct a house or purchase of a residential property with the intention of self-occupying, and is duly paying the home loan EMIs is eligible for tax deductions on the home loan.

How do I claim tax exemption on my home loan?

You can claim tax exemption on home loan at the time of filing your ITR under section 80C and section 24 of the Income Tax Act.

Home Loan News - Mar 2020
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