To understand the key tax benefit on a home loan, we are bifurcating the repayment techniques into four major elements- tax benefits on principal repaid, tax benefits on interest paid, deduction on pre-construction interest and section 80EE income tax benefits. The next section will let you know the concept of all in detail.
Tax Benefits on Principal Re-paid
Under section 80C of the Income Tax Act, the maximum deduction allowed for the repayment of the principal amount of home loan is Rs. 1.5 lakh. Deduction under section 80C also includes investments done in the PPF Account, Equity Oriented Mutual funds, Tax Saving Fixed Deposits, National Savings Certificate, etc. subject to the maximum of Rs. 1.5 lakhs.
Besides this, there are stamp duty and registration charges that one can claim under the aforementioned section. Though, the claim can only take place in the year in which the payment has been made.
Nevertheless, there’s a condition under which this repayment of the principal amount of housing loan is allowed. The deduction is only possible after the house gets entirely completed and there is a completion certificate for the same. Principal amount paid on any under construction structure/property is not going to be a part of this section.
Tax Benefits on Interest Paid
Under section 24 of the Income Tax Act, one can avail the deduction on Home Loan for payment of Interest tax benefit. The self-occupied property allows the deduction with the maximum limit of Rs. 2 lakh if it takes the completion within 5 years from the end of the Financial Year, otherwise the maximum limit is Rs. 30,000.
Interest on housing loan paid for let out property is fully allowed in the relevant assessment year in which it is claimed.
From Assessment year 2018-19, the loss from house property head that will be allowed to be set off from other heads of income will be restricted to Rs 2,00,000 in particular assessment year and the rest amount shall be carried forward for set-off in subsequent years.
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Deduction on Pre-construction Interest
You can also claim interest on housing loan paid before completion of construction of the property. It is termed as pre-construction interest. It is allowed in 5 equal installments beginning from the financial year in which the construction is completed. The limit of 2 lacs will also apply for pre-construction interest in case of self-occupied property. However it is fully allowed in case let our property.
Section 80EE Income Tax Benefit
Section 80EE proposes an additional deduction of Rs.50000 in respect of interest on housing loan to the first time house owners who own the house of Rs.50 lakh or less and has taken the home loan amount of less than or equal to Rs.35 lakh. The loan should be sanctioned between April 1, 2016, and March 31, 2017 to claim deduction under this section. This deduction allowed shall be in addition to the interest allowed under section 24(b) of the Income Tax Act, 1961.