Tax Deduction on Home Loan
Tax Deduction on Home Loans
- Tax Deduction on Home Loan Interest: Section 24
Homeowners can claim a deduction of up to Rs. 2 lakhs (Rs. 1.5 lakhs, if you are filing returns for FY 2013-14) on their home loan interest, if the owner or his family reside in the house property. The same treatment applies when the house is vacant. If you have rented out the property, the entire interest on the home loan is allowed as a deduction.
Your deduction on interest is limited to Rs. 30,000, if you fail to meet any of the conditions given below for the Rs. 2 lakhs rebate.
See all the conditions to claim the Rs. 2 lakhs rebate:
- The home loan must be for purchase and construction of a new property
- The loan must be taken on or after 1 April 1999
- The purchase or construction must be completed within 3 years from the end of the financial year in which the loan was taken
When is the deduction limited to Rs 30,000?
If the construction of the property is not completed within 3 years, the deduction on home loan interest shall be limited to Rs. 30,000. The period of 3 years is calculated from the end of the financial year in which loan was taken. So, if the loan was taken on 30th April 2015. The construction of the property should be completed by 31st March 2019. (This period has been extended to 5 years in Budget 2016, which is applicable from the financial year 2016-17)
Also, where the loan has been taken for reconstruction, repairs or renewal, only Rs.30,000 shall be allowed as deduction.
Note: The deduction can only be claimed, starting in the financial year in which the construction of the property is completed.
How do I claim a tax deduction on a loan taken before the construction of the property is complete?
Deduction on home loan interest cannot be claimed when the house is under construction. It can be claimed only after the construction is finished. The period from borrowing money until construction of the house is completed is called pre-construction period.
Interest paid during this time can be claimed as a tax deduction in five equal installments starting from the year in which the construction of the property is completed.
Note that a house doesn’t have to necessarily be occupied by the taxpayer for it to be considered a self-occupied house. Members of the family – spouse, parents, and children – may also be living there.
If you own more than one house property, the I-T Department only counts one property as a self-occupied house. It treats all other houses as rented properties even if they are not rented at all. Rental income calculation is based on what rent a similar property in the area would earn.
- Tax Deduction on Principal Repayment
The deduction to claim principal repayment is available for up to Rs. 1,50,000 within the overall limit of Section 80C from FY 2014-15 onwards (Rs. 1 lakh if you are filing returns for last financial year). Check the principal repayment amount with your lender or look at your loan installment details.
Conditions to claim this deduction-
- The home loan must be for purchase or construction of a new house property.
- The property must not be sold in five years from the time you took possession. Doing so will add back the deduction to your income again in the year you sell.
Stamp duty and registration charges
Stamp duty and registration charges and other expenses related directly to the transfer are also allowed as a deduction under Section 80C, subject to a maximum deduction amount of Rs. 1.5 lakhs. Claim these expenses in the same year you make the payment on them.
- Tax Deduction for First-Time Homeowners: Section 80EE
Section 80EE recently added to the Income Tax Act, provides a first-time homeowners tax benefit of up to Rs.50,000.
Do you own more than one house?
If you own more than one house, you need to file the ITR-2 form.
Read our guide to ITR-2 form here.
- Claiming Deduction on Home Loan
- The amount of deduction you can claim depends on the ownership share you have on the property.
- The home loan must also be in your name. A co-borrower can claim these deductions too.
- The home loan deduction can only be claimed from the financial year in which the construction is completed.
- Submit your home loan interest certificate to your employer for him to adjust tax deductions at source accordingly. This document contains information on your ownership share, borrower details and EMI payments split into interest and principal.
- Otherwise, you may have to calculate the taxes on your own and claim the refund, if any, at the time of tax filing. It’s also possible that you may have to deposit the dues on your own if there is a tax payable.If you are self-employed or a freelancer, you don’t have to submit these documents anywhere, not even to the IT Department. You will need them to calculate your advance taxliability for every quarter. You must keep them safely to answer queries that may arise from the IT Department and for your own records.