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Tax Benefit on Home Loan – FY 2017-18, AY 2018-19

Last Updated 30th May 2017

In the union budget announced on 1st Feb 2017, the Finance Minister has made three significant changes with respect to tax benefit on home loan and capital gains on sale of house property.

  • Change in long term capital gains definition - Upto 31st Mar 2017, any property sold within three years of purchase used to attract short term capital gains tax at marginal tax rate (30%). Starting FY 2017-18, a house property sale will qualify under long term capital gains if it is held for a minimum period of three years instead of two years and hence, be eligible for concessional tax rate of 20% with indexation benefit or 10% without indexation benefit. Further, the long term capital gains so accrued shall continue to be eligible for tax exemption by way of investment under capital gains bonds under section 54E. For more, refer to
  • Maximum interest exemption for tax benefit on home loan capped at Rs 2 lakhs including that on rented property - Earlier, interest paid on capital borrowed to purchase a house or any other property for investment purpose (property that was not self occupied but was let out or lying vacant) was eligible to be set off from rental income without any limit. Further, loss as a result of interest expense being more than the rental income was eligible to be set off from income under any head such as salary, business or interest. From FY 2017-18 and AY 2018-19, the maximum allowable deduction for interest on house property has been capped at Rs. 200,000 (Rupees two lakhs only).This limit of Rs. 2 lakhs is applicable to each tax payer and is the maximum deduction available for interest paid on all properties owned by the tax payer. However, this provision is not applicable for entities that are in the business of owning real estate.
  • For more details, refer to the latter part of this page under the heading "Deduction of interest paid on home loan taken to purchase a property that is either rented out or not self occupied."

  • TDS on rent paid by individuals – So far, only the corporate entities were required to deduct TDS at 10% on rent paid in excess of Rs. 2,00,000 per annum. As per Budget 2017, effective 1st June 2017, individuals, professionals and businessmen will also be required to deduct TDS at the rate of 5% on rent paid in excess of Rs. 50,000 per month. For more details on TDS rates, refer to

Budget 2017 has reduced income tax on individuals. For details refer to

There is no change in tax benefits on home loan as per 2016-2018 budget presented on Feb 1st 2017 applicable for financial year 2017-18 and assessment year 2018-19 as compared to previous year. Here are the practical tips to avail these to maximize your tax savings on home loans by MyLoanCare:

Like earlier,

  • First time home buyers will get an additional exemption of upto Rs. 50,000/- on interest paid for loans upto Rs. 35 lakhs with cost of home upto Rs. 50 lakhs.
  • For loans taken from the FY 2016-17, Up to Rs. Two Lakh if completed within 5 years from the end of the fin. year in which loan is taken, else Rs. 30,000.

Tax benefits on home loan in summary

Tax Benefits On Principal Repaid On Interest Paid
First Home – Self Occupied Actual principal repaid subject to a maximum of Rs. one lakh fifty thousand (Rs. two 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. two lakh if house construction completed within 5 years from the end of the financial year in which loan is taken, else Rs. 30,000.
Additional exemption of upto Rs. 50,000/- on interest paid for loans upto Rs. 35 lakhs with cost of home upto Rs. 50 lakhs.
First Home – Rented/ Vacant Upto Rs. One Lakh Fifty Thousand (Rs. Two Lakh for senior citizens) only if staying in a different city for work. Upto FY16-17 (AY17-18) – no limit; actual interest paid on each property can be set off from income.
Capped at cumulative Rs. 200,000 or actual interest paid for all properties owned by a tax payer.
Second Home or Additional Propertyt None Upto FY16-17 (AY17-18) – no limit; actual interest paid on each property can be set off from income.
Capped at cumulative Rs. 200,000 or actual interest paid for all properties owned by a tax payer.
Under Constrn. 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. 200,000.
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Income tax exemption on repayment of home loan principal amount up to Rs. 150,000 (Rs. 2,00,000 for senior citizens) annually under Section 80 C of the Income Tax Act:

    Key Highlights/ Terms to avail this exemption

  • Principal repayment component of up to Rs. one lakh fifty thousand (Rs. two lakhs for senior citizens) can be clubbed under the overall limit for tax saving instruments eligible under Section 80C to claim tax benefit upto Rs. 50,985 per annum
  • Available only for purchase or construction of residential property
  • Deduction available only for self occupied property
  • Any amount paid towards partial or full prepayment of home loan is also eligible to be included for benefit under this section

Deduction of home loan interest paid for self occupied home up to Rs. 2,00,000 (Rs. 3,00,000 for senior citizens) annually under Section 24 of the Income Tax Act

    Key Highlights/Terms to avail this exemption

  • Annual interest component of up to Rs. two lakh (Rs. three lakh for senior citizens) can be claimed as deduction against income and reduce your tax liability by upto Rs. 67,980 depending upon your tax slab
  • Additional exemption of up to Rs. 50,000 can be claimed as deduction against income from FY 2016-17 and AY 2017-18 on first home provided the sanctioned loan amount is upto Rs. 35 lakhs and cost of house is upto Rs. 50 lakhs
  • 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 yearly basis even if no payment has been made during the year but interest has accrued

Tax benefit on home loan for under construction property before possession

If you have taken a home loan for buying under construction property, you can claim tax rebate on the interest paid during the construction year but not on principal repaid.
According to Section 24 of IT Act, you can claim deduction against the interest amount that you have paid on your housing property during the pre construction period. The total interest paid during the pre construction period is allowed for tax deduction in five equal installments during five successive years from the year in which construction is completed and property possession is handed over to you. The total interest allowable during these five years will still be capped at Rs. 2 Lakh per year for self occupied house. There is no limit in case of let out property and deemed to be let out property. It is important to note that tax deduction during construction period is not allowed for loan taken for repair or renewal.
According to section 80C, no deduction against the principal amount will be allowed for the pre – construction period

Tax benefit on home loan 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. In this case, each of the applicant and the co-applicants (any number) can avail tax benefit individually. To be eligible for the tax benefit, all the borrowers and the co–borrowers must be joint owners of the property.
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.

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Deduction of interest paid on home loan taken to purchase a property that is either rented out or not self occupied

    Key Highlights/ Terms to avail this exemption

  • In case you own more than one property, one of which is self occupied and others are rented out or lying vacant, upto FY2016-17 (AY 2017-18), you can claim income tax deduction on entire interest paid on such property and set it off from rent for rented out property received or deemed rent on vacant property.
  • 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.
  • Starting FY2017-18 (AY 2018-19), 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.

Tax Saving tips

  • You can increase your tax benefit by buying property and availing home loan in joint name with your family members. In such case all borrowers and co-borrowers are eligible to separately claim tax benefit under Sections 80C (on principal) and 24 (on interest paid). So, in case a property has three co-owners who jointly take a home loan and pay EMI’s jointly, the maximum tax benefit available is thrice that available to a single applicant. However, the total tax benefit cannot exceed the actual principal and interest paid
  • This income tax benefit is available on any type of property (except land) including residential, commercial and industrial propertyy

Tax benefit on vacant or under construction 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. Upto FY16-17 (AY 17-18), 100% of the interest is eligible for deduction while starting FY17-18 (AY18-19), the interest benefit cannot exceed Rs. 200,000 per individual.

Property 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 will be Rs. 2 Lakh only.

Property is part self occupied and part is rented out -
The interest must be spilt in proportion of the size of the two parts and tax benefit shall be split proportionately.

Property is self occupied and part is rented out -
The tax deduction already claimed in previous financial years under Section 80C & Section 24 will be reversed and must be added as taxable income for the financial year in which you have sold the property.

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