pnb housing
July 30th, 2015

Tax benefits of Availing a Home Loan

Blog Seprator

Buying a home is an expensive proposition. For a large chunk of the masses, it is not possible to buy a house for themselves without availing a home loan. A home loan suffices your primary need of credit to buy your dream home. But it also comes with a topping on tax benefits

In this short article, we will discuss the major tax benefits of availing a home loan

Tax benefit on home loans under Section 80C

Section 80C of the income tax Act 1956 provides various avenues under which a tax payer may avail deductions up to Rs 1.50 lakh (Rs 1 lakh till the financial year 2013-14) out of his taxable income. These avenues include repayment of home loan, investment in PF, PPF, insurance premium, certain bank deposits and mutual fund schemes, etc. In case of repayment of your home loan, your monthly instalments, popularly known as EMI, comprise of two components namely the principal and the interest. The principal component alone is an eligible deduction under this section subject to conditions stated in the section.

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Tax benefits for home-loan under Section 24

The interest component of the EMI gets a tax deduction under this section subject to conditions stated in the section. The deduction available is up to Rs 2 lakh (Rs 1.50 lakh till financial year 2013-14) if the property is self-occupied (occupied by the owner or his family). It is unlimited if the property is let out on rent.

Illustration of tax benefits

  Under section 80C Under Section 24
Single borrower – house self occupied Maximum Rs.1.50 lakh Maximum Rs.2 lakh
Single borrower – house rented out Maximum Rs.1.50 lakh No limits. The entire interest payable can be deducted.
Joint borrowers – house self occupied The deduction can be claimed in proportion to the EMI payments by each of the joint borrowers. The maximum limit is Rs.1.50 lakh for each of the borrowers. The deduction can be claimed in proportion to the EMI payment by each of the joint borrowers within the limit of Rs.2 lakh for each of the borrowers
Joint borrowers – house rented out The deduction can be claimed in proportion to the EMI payments by each of the joint borrowers. The maximum limit is Rs.1.50 lakh for each of the borrowers. The deduction can be claimed in proportion to the EMI payment by each of the joint borrowers, with no maximum limit.

Note: One house can be considered self occupied even if the owner keeps it vacant because he is employed in a different city.

Additional tax benefits on interest on home-loan for first time buyers in addition to those available under section 80C and Section 24 of the IT Act, 1961.

Particulars  Section 80EE Section 80EEA
Eligible person Individual Individual
Type of property Residential property Residential property
Property value Up to Rs 50 lakhs Up to Rs 45 lakhs
Loan amount Up to Rs 35 lakhs Not specified
Loan sanctioned during period April 1, 2016 to March 31, 2017 April 1, 2019 to March 31, 2022
Maximum deduction per annum Rs. 50,000 Rs. 1,50,000
Limitation Individual should not own any other house property on the date of the sanction of a loan

Loan must be taken from a financial institution or a housing finance company

Individual should not have taken deduction under section 80EE

Individual should not own any other house property on the date of the sanction of a loan

Loan must be taken from a financial institution or a housing finance company

Documentation and procedure for claiming the tax benefit

The eligible tax benefits can be claimed by the tax payer at the time of filing his income tax returns for the relevant assessment year. The lender usually issues a certificate on an annual basis mentioning the principal and interest paid by the borrower during the year. This certificate is sufficient to claim the tax benefits.

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