Home Loan Tax Benefits and Exemptions
Posted: Nov 03, 2018
Home Loan Tax Benefits and Exemptions
Buying a dream home nowadays is not as difficult as climbing a tricky hill, home loans make it quite easier for us. Manage to buy home from one’s own savings seems next to impossible, even for high worth individuals. Loan is the only safe option. Banks provides various home loan schemes and you can choose one of them, which we had been discussed previously. But it always makes an individual under high burden, and there is no wheeze to make individual free from paying high return of loan.
There is a way when you have no saving all because paying for your dream home and its implications for a home loan, at that time there is only a thing you can do to save certain bucks of yours, which is possible by utilizing tax benefits you are getting from income tax rules of the government. Even if an individual is having money to buy home absolutely, then also it’s a better option to go for home loan as it helps you to save your money in tax paying as well as you don’t have to pay full money at a time so some amount of money will be in your hand for any uncertainty which may waiting for you in future!
Let me tell you the tax rules which will give you some relaxation while you have taken loan. Tax rebates are availed on a housing loan which will reduce an individual’s tax burden which results in to reduced burden of housing loan.
What are the major tax benefits of housing loan?
Tax benefits are deduction is allowed to a tax payer to the certain extent which helps to reduce the burden of the assessee. The home loans are eligible for tax benefits under three sections of Indian Income tax act; i.e. under section 80C, section 24 and section 80EE.
Generally loan amount i.e. EMI consists of two components principle amount and interest. One may be eligible for claiming benefits for both components.
Section 80C: tax benefit on principle amount of home loan
The maximum allowable deduction limit under section 80C is RS 150,000. Deduction under section 80C is accessible on payment or disbursement basis rather than the year for which the payment has made. The payment paid as a registration and stamp duty charges is allowable to deduct from tax under section 80C even if the assessee has not taken loan.
Tax benefit of home loan under this section for repayment of your principle amount part of home loan is allowed only after the construction is complete and completion certificate has been awarded to the project.
Section 80EE: tax benefits on interest of home loan taken for the residential purpose.
This section 80EE is allowable to the assessee who does not own any Residential house property on the date of sanction of loan. Maximum allowable tax benefit under section 80EE is Rs. 50,000. This must be over and above the deduction of Rs.2,00 000 under section 24 and Rs. 150,000 under section 80C.
Certain conditions for availing benefits of section 80EE:
- The deduction under this section is only allowed of the value of the property which is purchased or the value of the house property must be 50 lakhs or we can say should not exceed 50 lakhs, and value of the loan taken does not exceed 35 lakhs.
- The assessee should purchase home for the first time, i.e. he/she never purchased any house property before.
- The loan should be sanction between the previous year i.e for now 1st April 2018 to 31st march 2019
Section 24: benefit on interest of borrowed capital from house property.
The deduction allowable under this section 24 is subject to maximum limit of Rs. 2 lakhs. If in any case the property is not acquired or constructed within 3 years from the end of financial year in which the loan was taken, the interest benefit in this case will reduced from 2 lakhs to Rs.30,000 and the limit of three years has been increased to 5 years.
In case the property for which the home loan has taken is not self occupied, then in this case no maximum limit prescribed and the assessee can take deduction in tax of whole interest amount under section 24.
This deduction of interest on home loan under section 24 is deductible on accrual basis. As compared to section 80 which allows for deduction only on payment basis but deduction under section 24 should be claimed on yearly basis even if no payment made during the year.
Amendment in Budget 2017
Under the head income from house property, if the non self occupied property, the interest paid is reduced from the rent paid considered under income from house property. If incase it may happen that the interest paid is higher than rent earned which results in loss from house property, and this loss is allowed to be set off with income from any other head. From the financial year 2017-18 loss of maximum of Rs. 2 lakhs is allowed to be set off with income from other heads, this amount, which cannot set off can be carried forward to future years.
Here’s the tax benefit and exemption on home loan in a table
Home Loan Tax Deduction Details
Property cannot be sold within 5 years of purchase
Available only on the year, in which the stamp duty expenses are paid
Loan must be availed for purchase or construction and the property needs to be constructed with 5 years of availing the loan
Loan amount should not exceed Rs.35 lakh while the property value should not exceed Rs.50 lakh
Higher deduction in case of joint home loan:
If both the husband and wife are working they can claim deduction on interest on home loan and repayment of principle amount.
Let us understand with simple illustration.
In the following cases it is assumed that home loan of 50 lakhs is taken for period of 20 years @ 9.5% of interest rate.
House is owned on the name of single person and Single holder is taking loan for home.
Let us consider Total Property share is 100 %, Loan amount taken by single holder is 50 Lakh Rupees, Loan is taken for total 20 years, Rate of interest for home loan is 9.5 %, EMI (Equated Monthly Installment) per month is 46607 rupees. Holder is paying 5,59,284 Rupees amount annually, interest amount repaid is 4,71,232 rupees and principle amount repaid is 88,052 rupees.
Now in this scenario assessee can claim tax deduction as per below:
Interest deduction for under section 24 will be 2 Lakh rupees; Repayment of principal for under section 80C will be 88,052.
So at the end Total deduction claimed by single holder will be 2,88,052 Rupees for first year.
The house is owned by two person, let us consider husband and wife and both husband and wife has taken home loan individually.
Here Let us consider Property share is divided equally between husband and wife. So property share for husband will be 50 % and for wife will be 50 %, Loan amount for husband will be 2 lakh and wife will be 2 lakh, Total loan taken by family will be 20 years, Rate of interest for home loan will be 9.5 %
EMI (Equated Monthly Installment) per month will be divided between husband and wife which will be 23,304 rupees for each,
Amount repaid for husband will be 27,942 rupees and for wife will be 27,942 rupees, Interest amount repaid by husband will be 2,35,1616 rupees and for wife also 2,35,1616 rupees, Principal amount repaid by husband is 44,026 and for wife is 44,026.
Now in this case both husband and wife claim tax deduction as below:
Interest deduction for under section for husband will be 2 Lakh rupees and for wife will be also 2 Lakh rupees, Repayment of principal for under section 80C will be divided so for husband it will be 44026 rupees and for wife it will be 44,026 rupees.
So at the end Total deduction claimed by family (jointly husband and wife) will be 4,88,052 Rupees for first year.
If you are investing in house property then be a smart investor take maximum advantage of tax saving schemes and use maximum available tax benefits on loan you are paying.
Important things you must know about Tax benefits on a home Loan
There are certain important aspects, which you must be aware of the tax benefits on a home loan, which are mentioned below:
It’s the owner of the property who can claim all the tax benefits and exemptions as laid down by the government on a home loan and thus the borrower must be the owner of the property.
In case of co loan existing for a single home loan, the benefits and exemptions are applicable to both of them
Also, if a co owner is not a co borrower, then no tax benefits and exmptions are applicable on that person
Just vice versa, the co borrower, who is not a co owner, even cannot avail the tax benefits and all exemptions
The tax benefits and exemptions are evaluated based on the portion of percentage of the holding rights, each co owner is holding in the property. Thus, clearly establishing the exact percentage of right of the property is needed to avail tax benefits and exemptions
The tax benefits can be claimed only, upon furnishing the certificate mentioning the principal amount and interest, separately. This certificate is issued by the home loan bank or the lending agency.
Steps to claim Tax Benefits on a home loan
The following are the steps to claim tax benefits on a home loan:
Make an evaluation of the tax deduction to be claimed
Make sure that you are the owner or the co owner of the property
Submit your certificate for a home loan interest to your employer, which allowing them to make an adjustment on the tax deduction
In case, you file an ITR on your own, there is no need to furnish the above detail to your employer
While, if you are a self employee, there’s no need to submit any such document anywhere. All you need is to keep it handy and should be capable enough to furnish those details, once asked by the IT Department.
What factors leads to the calculation of the Tax benefit on home loans?
Below are some factors, which lead to the calculation of home loan tax benefits:
Home Loan amount
Home Loan Tenure
Interest rate on home loan
Loan start date
Gross annual income
Existing deduction under 80C/D and other sections
In order trot claim tax benefits on a home loan, you need ot understand all the sections available for the same. Any tax deduction on a home loan has to meet all the conditions and requirements, and one cannot ignore these, while making the claim for the deductions of any kind on a home loan. Effectively usign the tax benefits and exemptions on a home loan, can lead you to save quite a handsome amount of money, while you file your ITR of the year.
What else could you demand on a home loan? With the home loan, you are getting the financial helping hand and at the same time, you are entitled to several tax deductions and exemptions on the borrowed money. There’s nothing better than this. In fact, its just like an icing on the cake.
Buy yourself a home, get a home loan, give self and your family, a private space of own and live a happy life. Of course, don’t forget to claim the tax benefit and exemption, offering you with greater joy!