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    Tax Benefit on Home Loan - Section 24, 80C, 80EE

    Buying your house on a loan comes with multiple tax benefits.

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Section 80C - Principal Amount

     

    vEligibility:

     

    The repayment of principal amount of Home Loan by an individual/HUF is allowed as deduction under section 80C of the Income Tax Act.

     

    vQuantum of deduction:

     

    The maximum deduction under section 80C is Rs. 1,50,000 ( Increased from Rs. 1 Lakh to Rs. 1.5 Lakh). This tax deduction is the total of the deduction allowed under section 80C includes amount was invested in PPF, Tax saving Fixed Deposits, National Savings Certificates, Equity Oriented Mutual Funds etc.

     

    vWhencan avail this deduction:

     

    Tax Benefit on Home loan under this section for repayment of the principal part of loan is allowed only after the construction is complete and the completion certificate has been awarded. No deduction shall be allowed to those years during which the property was under construction.

     

    vTheamount paid as Stamp Duty & Registration fee also taken as deduction under this section even if the assesse was not taken the loan.

     

    vCanBenefits Availed under Section 80C Be Reversed?

     

    Yes, it can happen if you sell the property within 5 years from the end of financial year in which the possession of such property is obtained. In such a case, the aggregate amount of deductions availed for such housing loan in the previous years shall be added to the income of the assesse in the year of sale and taxed accordingly (as per income tax slab).

     

     

     

     

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    Section 24 – Interest on Home Loan

     

    vAsperSection 24 of Income Tax Act, the Income from the House property reduced by the amount of interest paid on the loan where the loan has been taken for the purpose of Purchase/ Construction/ Repairs/ Reconstruction of a residential house property.

     

    vIntereston Housing loan is allowable as deduction on accrual basis not on paid basis. vYoumusttake loan certificate from the borrower and also house completion certificate from the

    vendor.

     

    vYoucanstart claiming this interest when the construction of your house property is complete for example construction of the property started in the month of June’15 but construction is completed in the month of Dec’17, in this case claiming of interest is started from FY 2016-17.

     

    vMaximum Tax deduction:

     

     

     

     

     

     

     

     

     

     

    ØThemaximum tax deduction allowed under Section 24 of a self-occupied property is subjected to a maximum of Rs. 2 Lakhs (Increased in the budget 2014 from Rs. 1.5 Lakhs to Rs. 2 Lakhs).

     

    ØIncasethe property for which the Home Loan has been taken is not self-occupied, no maximum limit has been prescribed in this case and the tax payer can take tax deduction of the whole interest amount under Section 24.

     

    ØIncasea property has not been self-occupied by the owner by reason of the fact owing to his employment, business or profession, then the amount of tax deduction allowed under Section 24 shall be Rs. 2 Lakhs only.

     

    ØExample: Ashok takes a home loan of Rs. 40,00,000 and the annual interest repayment @10% goes up to Rs. 4,00,000.Ashok can claim an interest deduction of Rs. 2,00,000 if the house is self-occupied and the entire amount of Rs. 4,00,000 if the property is let out or vacant.

     

    vTreatment of Pre-Construction Interest:

     

    ØInterestpaid by assesse during the period of construction of house property. ØPre-Construction is allowed when you have taken a loan for purchase or construction of a house

    property (not allowed in case of loan for repairs or reconstruction).

    ØTheInterest that has been paid before the completion of construction should be aggregated and the whole aggregated amount shall be allowed as tax deduction in 5 equal instalments for 5 successive Financial Years starting from the year in which the construction has been completed.

     

    vInterestdeduction may be limited to Rs 30,000 if any one of these conditions is met –

     

    ØLoanisborrowed before 1st April 1999 for purchase, construction, repairs or reconstruction of

    house property

    ØLoanisborrowed on or after 1st April 1999 for repairs, renovation or reconstruction of house

    property.

     

    ØIftheproperty is not completed within the 3 years from the end of the financial year in which the loan was taken (This limit 3 years has been increased to 5 years from the FY 2016-17 onwards).

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    Tax Benefit on Home Loan – Section 24, 80C, 80EE

     

     

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    vExample:Loan taken by Mr. Ashok in Nov’14 for Rs. 10,00,000@10% p.a for the construction of house. The construction is completed in in Dec’16.How will he claim the Interest deduction? Sol: Pre construction period Nov’15 to Mar’16

    Interest paid during Pre-construction = 10,00,000*10%*5/12=41,667

    Since the construction is completed in Dec’16 therefore we will claim the deduction from FY 2016-17.

    So, Available Deduction = Interest paid in which construction is completed + 1/5 of Pre construction

    interest.

    Available Deduction = 10,00,000*10%+41,667/5= 1,00,000+8,333=1,08,333.

     

    vIfyouhave taken the loan to repay the first loan then interest amount on the second loan will be allowed as deduction under this section.

     

    Section 80EE – Interest on Home loan

     

    vWhocan avail this deduction?

    The deduction under this section is available only to Individuals - if you are an HUF, AOP, Company or any other kind of tax payer you cannot claim the benefit under this section.

     

    vThisdeduction is addition to the deduction available under section 24 & Section 80C vConditions to claim this deduction

     

    ØThisisthe first house purchased ØValueofthe house is not more than Rs. 40Lakhs ØLoantaken for this house is not more than Rs. 25Lakhs

     

    ØAsonthe date loan is sanctioned no other house is owned by the tax payer ØLoanforthis purpose taken by individual should be from the Financial Institution or Housing Finance Company.

    ØForthispurpose, loan should be sanctioned between 01.04.13 to 31.03.14.

    vQuantum of deduction

     

    Total deduction under this section shall not be more than Rs.1,00,000 in two AY 2014-15 & 15-16. If the entire amount of Rs. 1 lakh can’t be claimed in AY 14-15 the balance amount can be claimed in AY 15-16.:

     

    Interest paid in

    Interest paid in

    Deduction allowed in

    Deduction allowed in

    Total deduction

    AY 14-15

    AY 15-16

    AY 14-15

    AY 15-16

    under section 80EE

    1,50,000

    0

    1,00,000

    0

    1,00,000

    90,000

    30,000

    90,000

    10,000

    1,00,000

     

     

     

     

     

    30,000

    1,00,000

    30,000

    70,000

    1,00,000

     

     

     

     

     

    10,000

    90,000

    10,000

    90,000

    1,00,000

     

     

     

     

     

     

    vBudget2016:Under the section 80EE, there will be a tax benefit to the first time house owners who own the house of Rs. 50 lakh or less, and has acquired the loan amount of less than or equal to Rs. 35 lakh. The maximum limit is Rs. 1.5 lakh that can be claimed under this section. For this, the loan should be sanctioned between April 1, 2016 and March 31, 2017

     

    “Talk to yourself at least once in a day… Otherwise you may miss a meeting with an excellent person in this world…”

     

    - Swami Vivekananda

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