Tax Benefit on Home Loan
Tax Benefit on Home Loan is a very important criterion to be kept in mind while taking a Home Loan . To explain the Tax Benefit on Home Loan, we would be dividing the Repayment of Home Loan into 2 components:-
- Repayment of the Principal Amount
- Repayment of the Interest on Home Loan
As the repayment comprises of 2 different components, the tax benefit on home loan is governed by different sections of the Income Tax Act and these are claimed as tax deductions under different sections while filing the Income Tax Return.
The Sections under which Tax Benefit on Home Loan can be claimed are explained below:-
Section 80C: Tax benefit on Home Loan (Principal Amount)
The amount paid as Repayment of Principal Amount of Home Loan by an Individual/HUF is allowed as tax deduction under Section 80C of the Income Tax Act. The maximum tax deduction allowed under Section 80C is Rs. 1,50,000. (Increased from 1 Lakh to Rs. 1.5 Lakh in Budget 2014)
This tax deduction is the total of the deduction allowed under Section 80C and includes amount invested in PPF Account, Tax Saving Fixed Deposits, Equity Oriented Mutual funds, National Savings Certificate, Senior Citizens Saving Scheme etc.
This tax deduction under Section 80C is available on payment basis irrespective of the year for which the payment has been made. The Amount paid as Stamp Duty & Registration Fee is also allowed as tax deduction under Section 80C even if the Assessee has not taken Loan.
However, tax benefit of home loan under this section for repayment of principal part of the home loan is allowed only after the construction is complete and the completion certificate has been awarded. No deduction would be allowed under this section for repayment of principal for those years during which the property was under construction.
Moreover, in case you are planning to buy an under-construction property as it is priced at a lower price as compared to a fully completed property, you are here also requested to note that Service Tax is also levied on Under Construction Property & the Finance Minister while announcing the Budget 2013 also changed the rates of Service Tax on under Construction Property. However, no Service Tax is levied on properties on which construction has been fully completed.
However, Section 80C(5) also states that in case the assessee transfers the house property on which he has claimed tax deduction under Section 80C before the expiry of 5 years from the end of the Financial Year in which the possession has been obtained by him, then no deduction and tax benefit on Home Loan shall be allowed under Section 80C. The aggregate amount of tax deduction already claimed in respect of previous years shall be deemed to be the Income of the Assessee of such year in which the property has been sold and the Assessee shall be liable to pay tax on such income.
TAX BENEFIT ON HOME LOAN (INTEREST AMOUNT)
Tax Benefit on Home Loan for payment of Interest on Home Loan can be claimed as Deduction underSection 24 as well as under the newly inserted section 80EE (Inserted in the Budget 2013, to be applicable from 1st April 2013)
Section 24: Income Tax Benefit on Interest on Home Loan
Tax Benefit on Home Loan for payment of Interest is allowed as a deduction under Section 24 of the Income Tax Act. As per Section 24, the Income from House Property shall be reduced by the amount of Interest paid on Home Loan where the loan has been taken for the purpose of Purchase/ Construction/ Repair/ Renewal/ Reconstruction of a Residential House Property.
The maximum tax deduction allowed under Section 24 of a self-occupied property is subject to a maximum limit of Rs. 2 Lakhs (increased in Budget 2014 from 1.5 Lakhs to Rs. 2 Lakhs).
In case the property for which the Home Loan has been taken is not self-occupied, no maximum limithas been prescribed in this case and the taxpayer can take tax deduction of the whole interest amount under Section 24.
Please Note: In case a property has not been self-occupied by the owner by reason of the fact owing to his employment, business or profession carried on at any other place, he has to reside at that other place not belonging to him, then the amount of tax deduction allowed under Section 24 shall be Rs. 2 Lakhs only.
It is also important to note that this tax deduction of Interest on Home Loan under Section 24 is deductible on payable basis, i.e. on accrual basis. Hence, deduction under Section 24 should be claimed on yearly basis even if no payment has been made during the year as compared to Section 80C which allows for deduction only on payment basis.
Moreover, if the property is not acquired/constructed completed within 3 years from the end of financial year in which the loan was taken, the interest benefit in this case would be reduced from 2 Lakhs to Rs 30 thousand only.
The Quantum of Deduction allowed for payment of Interest on Home Loan under Section 24 has been summarized below:-
|Quantum of Deduction allowed for Payment of Interest on Home Loan under Section 24|
|Type of Property||Self Occupied Property||Not Self Occupied Property|
|Completion Status||Completed within 3 years||Not completed within 3 years||Completed within 3 years||Not completed within 3 years|
|Deduction Allowed||Rs. 1,50,000||Rs. 30,000||No Limit||No Limit|
Tax Benefit on Home Loan
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