Taking a home loan can help you save tax| The repayment of a Home Loan comprises 2 components:
1. Repayment of Principal and
2. Repayment of Interest
As the repayment comprises of two different components, the tax benefit on a home loan is governed by different sections of the Income Tax Act. Following are the benefits available on loan taken on House Property which can be claimed as deductions in the Income Tax Return:
1. Deduction on Principal Repayment (U/s 80C): The amount paid as Repayment of Principal of Home Loan taken by an Individual/HUF is allowed as deduction u/s 80C. The maximum deduction allowed u/s 80C is Rs. 1,50,000. This deduction is available on a payment basis. But to claim this deduction, the house property should not be sold within 5 years of possession. Otherwise, the deduction claimed earlier will be added back to the total income in the year of sale.
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2. Deduction for Stamp Duty and Registration Charges (u/s 80C): A deduction for stamp duty and registration charges paid on the purchase of house property can also be claimed u/s 80C but within the overall limit of Rs. 1,50,000. It can be claimed only in the year in which these expenses are incurred.
3. Deduction of interest on Home loan. As per Sec 24(B), the maximum deduction for Interest payable on the Loan is Rs. 2,00,000 where the loan has been taken on or after 01-04-1999 for the Purchase or Construction of a self-occupied property and the property has been acquired or constructed within 5 years from the year in which the loan was taken. The maximum tax deduction allowed u/s 24 of interest on the loan on a self-occupied property is Rs. 30,000 where the loan was taken before 01-04-1999 or the loan was taken for repair, renewal or reconstruction. There is no maximum limit in case the house property for which the Home Loan has been taken is not self-occupied and the taxpayer can take a deduction of the whole interest amount.
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4. Additional deduction of interest u/s 80EEA: Additional deduction of interest on home loans taken from any financial institution is available to individuals up to a maximum limit of Rs. 1,50,000 provided the following conditions are satisfied:
The stamp value of the property does not exceed Rs. 45 lacs.
The loan must have been sanctioned between 1st April 2019 to 31st March 2021.
On the date of sanction of loan, the individual does not own any other residential house property.
5. Additional deduction of interest u/s 80EE:
Things to Remember
Section 80EE came into effect from the financial year 2013-14. It was available for only 2 years, FY 2013-14 and FY 2014-15. The deduction allowed earlier was limited to a maximum of Rs 1 lakh in total and was available for only 2 financial years.
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However, this section has been reintroduced, effective F.Y 2016-17 (A.Y 2017-18). Now the deduction is allowed for up to Rs. 50,000 per year until the loan is repaid. Additional deduction of interest on home loans taken from any financial institution is available to individuals up to a maximum limit of Rs. 50,000 provided Additional deduction of interest on home loan taken from any financial institution is available to individuals up to a maximum limit of Rs. 50,000 provided the following conditions are satisfied:
The value of residential house property does not exceed fifty lakh rupees.
The loan must have been sanctioned between 1st April 2016 to 31st March 2017.
The amount of loan sanctioned for acquisition of the residential house property does not exceed thirty-five lakh rupees.
On the date of sanction of loan, the individual does not own any other residential house property.
Summary
| Section | Nature | Maximum Deduction | Conditions |
| 24 | Interest | Rs. 2,00,000 | Construction must be completed within 5 years from the end of FY in which loan was taken. |
| 80C | Principal | Rs. 1,50,000 | Property should not be sold within 5 years of possession. |
| 80C | Rs. 1,50,000 | The claim is allowed in the year of expense incurred. | |
| 80EE | Interest | Rs. 50,000 | Property Value should not exceed Rs. 50 lakhs and the loan amount should not exceed Rs. 35 lakhs. |
| 80EEA | Interest | Rs. 1,50,000 | The stamp value of a property should not exceed Rs. 45 lakhs and deduction u/s 80EE must not be claimed. |
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