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Who Can Enjoy Benefits Of Housing Loan Tax Deductions?

For everyone, owning a home is a dream come true. The Indian government has consistently demonstrated a strong propensity to encourage people to invest in homes and apply for home loan. Because of this, a home loan qualifies for a tax credit under Section 80C. Availing of a home loan to purchase a property offers additional tax advantages that dramatically lower your tax bill.

By attempting to address the concerns of accessibility and affordability, numerous programmes, like the Pradhan Mantri Jan Dhan Yojana on the Indian housing market, are shining a bright light. We will discuss all the tax advantages of house loans in this article.

Deduction for home loan interest

You must apply for a home loan to buy or build property without losing your savings. If you use the loan to construct a dwelling, you must repay it within five years of the end of the fiscal year of obtaining the loan.

If you are making EMI payments for your home loan, they consist of two parts:

  • Interest payment
  • Principal repayment

Under Section 24, you may deduct up to Rs 2 lakh from your total income for the interest component of the EMI you paid during the year.

The maximum housing loan interest deduction paid on self-occupied residential property is Rs 2 lakh starting with the assessment year 2018–19.

No maximum amount can be claimed for interest on rented property.

However, the maximum total loss that may be claimed under the heading “House Property” is only Rs 2 lakh.

This deduction is available starting in the year that the house’s construction is complete.

Housing loan interest deduction during the pre-construction phase

Let’s say you purchased a property that is still being built. You do, however, pay the EMIs. If this is the scenario, you won’t be able to get a housing loan interest deduction until the construction is finished or from the moment you purchase a property that is already built.

Does this imply that you would not be eligible for any tax benefits on the interest paid between when you borrowed the loan and when the building was finished? No.

Let’s investigate why.

According to the Income Tax Act, this kind of interest, known as the pre-construction interest, may also be deducted. Starting from the year the property is acquired or the beginning of construction, a deduction in five equal instalments is permitted. You can otherwise claim from your house property income over and above the deduction. The maximum eligible amount is still Rs 2 lakh, however.

Principal repayment deduction

Section 80C allows a principal component deduction of the EMI paid throughout the year. Up to Rs. 1.5 lakh is permitted to be claimed as the maximum amount.

However, you must not sell the house within five years of occupancy to qualify for this deduction. If not, the earlier deduction will be subtracted from your income in the year of sale.

Deduction for registration fees and stamp duty

Under Section 80C, a deduction for stamp duty and registration fees can also be made in addition to the deduction for principal repayment. However, it can only be up to a total of Rs 1.5 lakh.

You can only claim it in the year these costs are incurred, though.

Extra deductions allowed by Section 80EEA

Budget 2019 has added some additional deductions under Section 80EEA for homebuyers, up to a maximum of Rs 1,50,000, to encourage the housing sector.

The following prerequisites must be satisfied to claim this deduction:

  • The property’s stamp value is not more than Rs 45 lakh.
  • The loan had to be approved between 1 April 2019 and 31 March 2022. (extended from 31 March 2021)
  • The borrower is a first-time home buyer and does not currently own another home.
  • If a person requests a deduction under this section, they should not be permitted to do so under Section 80EE.

Deduction for a joint home loan

Each loan holder may get a housing loan interest deduction of up to Rs 2 lakh and principal repayment under Section 80C up to Rs 1.5 lakh in their tax returns if the loan is taken out jointly.

They must also share ownership of the property lent to be eligible for this deduction. Therefore, a loan jointly with your family will allow you to deduct more from your taxes.

Jack henry
Jack henry
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