On purchase of residential property through home loan, one can save taxes through Section 24, Section 80C, Section 80EE and Section 80EEA of Income Tax Act.
Time and again we keep getting query on saving of taxes of purchase of residential property taken on loan. Therefore, we have come up with a detailed blog explaining the tax saving schemes wrt residential property purchased with the help of loan. On purchase of residential property through home loan, one can save taxes through Section 24, Section 80C, Section 80EE and Section 80EEA of the Income Tax Act. The deduction of tax under these Sections can be either claimed on principal amount or interest amount.
Who can claim deduction on home loan?
The provision of the Income Tax Act clearly states that only that person can claim the deduction on home loan who has title over the property and has taken loan in his name. In simple words, the person must be:
– Owner of the property, and
– Borrower of the loan
The deduction on home loan can be claimed only the individuals or members of HUFs and not by any other person. Therefore, companies, partnership firms, body corporates or trusts cannot claim deduction on home loan.
Also Read: 10 Best Ways to Save Taxes!
Now, let us know each provision in detail
Section 24: Deductions from income from House Property
If the person has taken a home loan for purchase or construction, whatever interest he pays on the principal amount of the loan is saved from paying taxes. The sub-clauses in this category are:
- If the loan has been taken for a self-occupied property, then he can claim deduction of up to Rs. 2 lakh or the amount of loan, whichever is lower.
- If the person took loan for purchase or construction (not renovation) of a property before actually buying or completing its construction, then also he can still claim the interest. The deductions can be claimed on the interest paid before the construction or purchase is completed, in 5 equal instalments, from the year in which the house is bought or the construction is completed.
To avail this deduction, the person needs to compute the interest amount he has to pay to the bank or financial institution from where he has taken the loan and separate from the principal repayment. It does not matter whether the amount has been actually paid to the financier – one can get deduction for the complete annual interest amount.
Also Read: Do I need to file Income Tax Return?
Conditions for claiming deduction under Section 24
- The person has to buy or complete construction of the house within 5 years (3 years till FY 2015-2016) of taking the loan for him to be able to claim maximum deduction on the loan interest amount.
- The home loan is taken on or after 1st April, 1999
- The person must have an interest certificate for the loan that he is taking.
Certain Exceptions to Section 24
- If the house is not occupied by person because he lives in another town due to employment or business, and lives in another property or rented property in the city of his employment, then he can claim tax deduction on interest payment only up to Rs. 2 lakh.
- There is no deduction for any brokerage or commission for arranging the loan or tenant.
Under Section 80C, the principal amount paid on home loan is allowed as deduction for the relevant financial year. The amount of deduction that can be availed under Section 80C is the principal amount or Rs. 1,50,000 whichever is lower.
Section 80C deductions conditions
The house property should not be sold within 5 years of possession.
If the property is sold within 5 years of possession, then the deduction which has been claimed earlier shall be added back in the income of the person in the year of sale.
Apart from the above deduction, the person can also claim deduction for stamp duty and registration fees under Section 80C but within the bracket of Rs. 1.5 lacs. Further, these expenses can be claimed only in the year in which the expenses have been incurred.
Section 80EE provides additional deduction in respect of interest on loan taken for residential house property. The maximum deduction allowed under this Section is Rs. 50,000/-
Also Read: Which ITR should I file?
Deduction Conditions under Sections 80EE
- The amount of loan taken should be Rs 35 lakhs or less and the value of the property does not exceed Rs 50 lakhs.
- The loan must have been sanctioned between 1st April 2016 to 31st March 2017.
- On the date of sanction of loan, the individual does not own any other house i.e first-time house owner.
The provision Section 80EEA was introduced through the Union Budget, 2019 and allows deduction in respect of interest on loan taken for certain house property. It allows a maximum deduction of upto Rs. 1,50,000.
Also Read: Which tax regime is better: Old or New?
Conditions to be met for Section 80EEA
- The stamp value of the property does not exceed Rs 45 lakhs.
- The loan must have been sanctioned between 1 April, 2019 to 31 March, 2020.
- On the date of sanction of loan, the individual does not own any other house i.e first time home buyer.
- The individual should not also be eligible to claim deduction under section 80EE if claiming deduction under this section.
Brownie Point: Deduction for Joint Home Loan
If the loan is taken jointly, then each of the loan holders can claim a deduction for home loan interest up to Rs 2 lakh each under Section 24 and principal repayment under Section 80C up to Rs 1.5 lakh each in their individual Income Tax Returns.
Condition for claiming deduction on joint home loan
To claim deduction on joint home loan, the persons should also be co-owners of the property taken on loan.
Joint Home Loan can be taken by any two persons who are major and are of sound mind. There is no requirement that joint home loan can only be taken by the members of the family.
If the construction or purchase is not completed within 5 years, then person will be able to claim only Rs. 30,000 (standard deduction) under Section 24(a) and not Rs. 2 lac (maximum benefit) under Section 24(b).
Yes, stamp duty of house property and other related expenses can be claimed as deduction under Section 80C, subject to the bracket limit of Rs. 1.5 lacs. The person however, can claim these expenses only in the year in which they have been incurred and not in all or any of the financial years.
In order to claim tax deduction for home loan, the person should also be the owner of the property. If you are not the owner of the property and you are paying loan amount on your husband’s behalf, then you will not be able to claim the tax deduction. On the other hand, if you are the co-owner of the property, then you can claim this tax deduction.
No, these deductions are available only under the old tax regime.
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