The Indian government offers several tax benefits for home loans, which can help homebuyers save a significant amount of money on their income tax. These benefits are available under Sections 24(b), 80EE, and 80EEA of the Income Tax Act, 1961.
One of the biggest benefits of homeownership is the tax breaks that are available. The most significant tax break is the deduction for mortgage interest. You can deduct the interest you pay on your mortgage up to a certain amount each year. This deduction can save you a significant amount of money on your income tax.
Another tax break that is available to homeowners is the deduction for property taxes. You can deduct the property taxes you pay on your home up to a certain amount each year. This deduction can also save you a significant amount of money on your income tax.
Another benefit of homeownership is the equity buildup. As you pay down your mortgage, you build up equity in your home. Equity is the difference between the value of your home and the amount you owe on your mortgage. When you sell your home, you can use the equity you have built up to pay for your next home or to fund other financial goals.
Sense of Security
Homeownership can also provide a sense of security. When you own your own home, you have a place to live that you know you will not be evicted from. You also have more control over your living environment. You can make changes to your home to suit your needs and taste.
While there are many benefits to homeownership, there are also some drawbacks. One of the biggest drawbacks is the cost of maintenance and repairs. As a homeowner, you are responsible for the upkeep of your home. This includes things like lawn care, snow removal, and repairs to the roof, plumbing, and electrical systems.
Another drawback of homeownership is the lack of flexibility. When you rent an apartment, you can move at the end of your lease if you want to. However, when you own a home, you are more likely to be tied down to your property. This can make it difficult to move for a job or other opportunity.
Homebuyers can claim a deduction on the interest paid on their home loan under Section 24(b) of the Income Tax Act, 1961. The deduction is available for interest paid on a housing loan taken for acquiring, constructing, repairing, renewing, or reconstructing a house property. The interest payable on such a loan is divided into two phases:
The pre-construction period: This is the period before the construction of the house property is completed or the property is acquired. The interest payable during this period can be claimed as a deduction over a period of five years, in equal annual installments starting from the year of acquisition or completion of construction.
The post-construction period: This is the period after the construction of the house property is completed or the property is acquired. The interest payable during this period can be claimed as a deduction in the year in which it is paid.
Interest payable on a fresh loan taken to repay the original loan raised earlier for the aforementioned purposes is also eligible for deduction.
The maximum deduction available under Section 24(b) is Rs. 2 lakh per financial year. However, the deduction is reduced to Rs. 30,000 if the loan is taken for the reconstruction, repairs, or renewals of a self-occupied property.
In the case of a self-occupied residential property, a deduction of Rs. 2 lakh is allowed against the interest incurred on the housing loan taken for acquisition or construction. The total deduction limit of Rs. 2 lakh applies to both pre- and post-construction period interest for self-occupied properties. Homebuyers are eligible to claim this deduction if the construction or acquisition of such properties is completed within 5 years from the end of the financial year in which the loan was borrowed. However, the deduction amount is reduced to Rs. 30,000 if the loan is taken for reconstruction, repairs, or renewals of the self-occupied residential property.
In the case of a joint housing loan where all co-borrowers are also co-owners of the property, each co-borrower can claim a deduction of Rs. 2.00 lakhs on the interest paid.
Let out/deemed to be let out property: – Interest payable for the year of completion of construction or acquisition of the property can be fully claimed as a deduction in that specific year. The ceiling limit of interest deduction does not apply in respect of let out or deemed to let out property.
Section 80C of the Income Tax Act allows taxpayers to claim a deduction on the repayment of the principal component of a housing loan borrowed for the purchase or construction of a new residential house property. The maximum amount of deduction that can be claimed is Rs. 1.5 lakh per year.
To be eligible for this deduction, the annual value of the property must be chargeable to tax under the head ‘Income from House Property’ or would have been chargeable to tax under the same head had it not been used for the assessee’s own residence.
In the case of a joint home loan where all co-borrowers are also co-owners of the property, each co-borrower can claim a deduction on the repayment of the principal amount of the home loan under Section 80C, up to Rs. 1.5 lakh each.
for the purposes of purchase or construction of a residential house property the income from which is chargeable to tax under the head "Income from house property" (or which would, if it had not been used for the assessee`s own residence, have been chargeable to tax under that head), where such payments are made towards or by way of—
(a) any instalment or part payment of the amount due under any self-financing or other scheme of any development authority, housing board or other authority engaged in the construction and sale of house property on ownership basis; or
(b) any instalment or part payment of the amount due to any company or co-operative society of which the assessee is a shareholder or member towards the cost of the house property allotted to him; or
(c) repayment of the amount borrowed by the assessee from—
(1) the Central Government or any State Government, or
(2) any bank, including a co-operative bank, or
(3) the Life Insurance Corporation, or
(4) the National Housing Bank, or
(5) any public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes which is eligible for deduction under clause (viii) of sub-section (1) of section 36, or
(6) any company in which the public are substantially interested or any co-operative society, where such company or co-operative society is engaged in the business of financing the construction of houses, or
(7) the assessee`s employer where such employer is an authority or a board or a corporation or any other body established or constituted under a Central or State Act, or
(8) the assessee`s employer where such employer is a public company or a public sector company or a university established by law or a college affiliated to such university or a local authority or a co-operative society; or
(d) stamp duty, registration fee and other expenses for the purpose of transfer of such house property to the assessee,
but shall not include any payment towards or by way of—
(A) the admission fee, cost of share and initial deposit which a shareholder of a company or a member of a co-operative society has to pay for becoming such shareholder or member; or
(B) the cost of any addition or alteration to, or renovation or repair of, the house property which is carried out after the issue of the completion certificate in respect of the house property by the authority competent to issue such certificate or after the house property or any part thereof has either been occupied by the assessee or any other person on his behalf or been let out; or
(C) any expenditure in respect of which deduction is allowable under the provisions of section 24;
Section 80EE of the Income Tax Act allows taxpayers to claim an additional deduction of Rs. 50,000 on the interest payable on a housing loan borrowed for the purpose of acquiring a house property.
The deduction is available for loans sanctioned by financial institutions during the financial year 2016-17, with the following conditions:
The amount of loan sanctioned must be less than Rs. 35 lakh.
The value of the residential property must not exceed Rs. 50 lakh.
The assessee must not own any residential house on the date of sanction of loan.
If the taxpayer meets all of these conditions, they can claim the additional deduction of Rs. 50,000 over and above the deduction available under Section 24(b).
However, it is important to note that if the taxpayer claims the deduction under Section 80EE, they will not be eligible to claim any deduction for the interest payable on the loan under any other provision of the Income Tax Act.
Section 80EEA of the Income Tax Act allows taxpayers to claim an additional deduction of up to Rs. 1.5 lakh on the interest payable on a home loan taken subject to the following conditions:
The assessee must be an individual.
The loan should be sanctioned by a financial institution during the period from April 1, 2019 to March 31, 2022.
The stamp duty value of the residential property does not exceed Rs. 45 lakh.
The assessee should not own any residential house on the date of sanction of loan.
The individual should not be eligible to claim deduction under Section 80EE.
If the taxpayer meets all of these conditions, they can claim the additional deduction of Rs. 1.5 lakh over and above the deduction available under Section 24(b).
Here is an example to illustrate how this deduction works:
Suppose you take a home loan of Rs. 30 lakh to purchase a new residential property. The stamp duty value of the property does not exceed Rs. 45 lakh and you did not own any residential house on the date of sanction of loan.
You can claim a deduction of Rs. 2 lakh under Section 24(b) and an additional deduction of Rs. 1.5 lakh under Section 80EEA.
Therefore, the total deduction you can claim on the interest payable on the home loan is Rs. 3.5 lakh.
CA Pranay Jain is a young and aspiring Chartered Accountant. He qualified Chartered Accountancy Course in 2021 and has a well-established practice in various fields of taxation and auditing, with his core area of practice being in the field of litigation i.e., handling assessment and appeal-related matters and representing assesses before various tax departments.
He is also socially active on LinkedIn at linkedin.com/in/capranayjain
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