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 sale.
Change in long term capital gains definition - Earlier, any property sold within 3 years of purchase used to attract short term capital gains tax at marginal tax rate (30%). Starting FY2017-18, a house property sale will qualify under long term capital gains if it is held for a minimum period of 2 years and hence be eligible for concessional tax rate of 20% (with indexation) or 10% (without indexation) in addition to tax exemption by way of investment under Section 54E. For more, refer to MyTaxCare Capital Gains on Property Guide 2017.
Capping of interest set off in case of rented property - Earlier, interest paid on capital borrowed to purchase a house for investment purpose (house 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, the maximum allowable deduction for interest has been capped at Rs. 200,000 (Rupees two lakhs only). 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 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 MyTaxCare TDS Guide 2017
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:
First time home buyers will get 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.
No change – Upto Rs. One Lakh Fifty Thousand (Rs. Two Lakh for senior citizens)
Up to Rs. Two Lakh if completed within 3 years from the end of the financial year in which loan is taken, else Rs. 30,000. For loans taken from the FY 2016-17, Up to Rs. Two Lakh if 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
No change – Upto Rs. One Lakh Fifty Thousand (Rs. Two Lakh for senior citizens) if staying in a different city for work
No change – On entire interest paid without any limit
No change – On entire interest paid without any limit
No change – The interest paid can be claimed in equal parts in five fin. years post completion or handing over.
Paying More than 8.35% On your home loan?
Transfer your loan today and save interest Apply Now
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 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 the 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.
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 self occupied and others are rented out or lying vacant, upto FY2016-17 (AY 2017-18), you can claim income tax benefit 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 o=income, interest income, thus reducing 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 such property has been capped at Rs. 200,000.
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 as 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 property
Tax Benefit under following cases
Property is vacant -
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. You can claim 100% of the interest payable against the rental income or deemed rental income
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 sold before 5 years from taking possession -
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
Property is 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
The government is planning to implement a policy plan to reduce shortage of housing in the urban areas by encouraging renting of vacant homes lying across the country. M. Venkaiah Naidu, minister of urban development, housing and poverty alleviation said that the draft for national urban rental housing policy is ready and it will go the union cabinet soon for its approval.
Supertech, Delhi based Real estate developer plans to invest Rs. 2,500 crore to deliver 15,000 low cost homes in the current Financial Year. The company further added that they have already delivered 8,500 units in the last financial year and are committed to deliver another 15,000 units this fiscal year.
Indiabulls housing finance said that it has raised Rs. 43 crore through an issue of non-convertible debentures (NCDs) as a part of its plans to raise Rs. 6,000 crore from the market. They also informed that this is the sixteenth tranche of NCDs of having a face value of Rs 10 lakh each.
NABARD (National Bank for Agriculture and Rural Development) is planning to raise Rs. 7,000 crore to give a boost to affordable rural housing. The funds will be lent to an SPV (Special Purpose Vehicle) which will undertake various housing projects under the assistance of Pradhan Mantri Awaas Yojana-Gramin (PMAY-G).
UCO Bank chief has urged its employees to share the burden to improve the performance of the bank. On April 8, 2017 he made a presentation to its staff members and explained areas of improvement in customer service retail loans, housing loans and priority sector lending. He further added that the employees may not get their reimbursement if they fail to deliver the expected performance.
*My Finance Care Advisors Pvt. Ltd., or https://www.myloancare.in is a bank neutral multi bank platform that helps borrowers and bank customers compare loans and deposits of all banks in India at one place. Information carried at this website is based on perusal of public sources and should not be construed as an offer or solicitation or invitation to borrow or lend. The Company does not assure as to the correctness of information carried at the website. Lenders/ banks/ other parties may contact us at firstname.lastname@example.org to provide corrections or updates. We may act as and/ or be associated with channel partners of banks and other sellers of financial products.