Everyone dreams of owning their own home. Most of them picture their home as a dreamy upscale 2 bhk flat in Mumbai. The good news is, there is no better time to realise that dream than now. A great fillip is being provided to ownerships and potential home buyers by the Government of India, which is encouraging citizens to invest in home ownership.
Apart from home loans getting tax deduction under section 80C of the Income Tax Act, there are various other schemes and tax benefits that reduce your tax outgo and resolve issues of affordability and accessibility. Let’s examine the range of tax benefits home-buyers are entitled to against their home loan:
Deduction for Interest payment on home loan
Each EMI paid for a home loan has two components- interest payment and principal repayment. The interest portion paid for the year can be claimed as a deduction from total income up to a maximum of Rs. 2 lakhs under Section 24 of the Income Tax Act.
For the Assessment Year 2018-19, maximum deduction for interest paid on Self Occupied house property is Rs 2 Lakh. There is no upper limit for claiming interest on let out property. Deduction can be claimed from the year in which house construction is completed.
In order to be eligible for this deduction, the home loan must be taken for purchase or construction of a house and the construction must be completed within five years of the fiscal year the loan was taken in.
Deduction for Principal repayment of home loan
As earlier mentioned, an EMI has two components: the interest and principal. The principal repayment paid for the year is allowed as deduction under Section 80C of the IT Act. The maximum amount that can be claimed under this section is up to Rs. 1.5 lakh. Plus, in order to claim this deduction, the house property should not be sold within 5 years of possession. Otherwise, the deduction claimed earlier will be added to income in the year of sale.
Deduction for Interest paid during pre-construction period
Suppose you have bought an under-construction property and not moved in yet, but you are paying the EMIs. In that case, you do become eligible to claim interest on the home loan as a deduction begins only after completion of construction or immediately if you buy a fully constructed property.
The income tax law provides for the claim of something called pre-construction interest, as a deduction in five equal installments, starting from the year in which the property is acquired or construction is completed. This is in addition to the deduction you are otherwise eligible to claim from your house property income. However, the maximum eligibility remains confined to up to Rs. 2 lakh.
Deduction for Stamp Duty and Registration Charges
Home buyers can also claim a deduction for stamp duty and registration charges under Section 80C but within the overall limit of Rs. 1.5 lakh. It must be remembered that this deduction can be claimed only in the year in which these expenses are incurred.
Deduction for first time Home Buyers
An additional deduction is allowed under Section 80EE of the Act for first time home buyers for up to Rs 50,000. In order to claim this deduction, the amount of loan taken should not be more than Rs. 35 lakh and the value of the property should not exceed Rs. 50 lakhs. Plus, the loan must have been sanctioned between April 01, 2016 and March 31, 2017 and the individual does not own any other house on the date of sanction of loan.
Section 80EE has been reintroduced from FY 2016-17. Earlier the deduction allowed under Section 80EE was available for two years FY 2013-14 and FY 2014-15 only.
Deduction on Joint Home Loan
If the loan is taken jointly, then each of the loan holders can claim a deduction of up to Rs. 2 lakh each for loan interest and up to Rs. 1.5 lakh each in their individual tax returns on principal repayment under Section 80C. To be eligible for this deduction, they should also be co-owners of the property taken on loan. Thus, loan taken jointly with a family member can help one claim larger tax benefits. Thanks to these tax reliefs, buying a 2 bhk flat in goregaon west is not going to be much of a task any more.