What are various benefits of taking a house loan in income tax. What are various deductions & exemptions available in income tax for House loan and interest on house loan?
Thanks for such a nice & clear question.
When an individual approaches a bank for house loan, there are various queries in his mind regarding tax benefits of house loan. For the proper understanding we have to make two types of payment for a house loan-
- Principal repayment.
- Payment of Interest on house loan.
Now we will discuss tax benefits one by one for both of these types of payment.
- Deduction under section 80C for Principal Repayment of House loan. :- The repayment of principal amount of house loan by Individual/HUF is allowed as deduction U/s 80C with maximum limit of Rs. 150000 for a long list of deductions available U/s 80C which includes PF, PPF, NSC, LIC and tax saving FD etc. But deduction for repayment of house loan u/s 80C is only allowed after completion of construction. Further if constructed house is sold before expiry of 5 year from the end of the financial year in which possession of obtained, deduction will be withdrawn.
- Deduction of Interest on House Loan U/s 24:- As per Section 24, if loan was taken for purchase, construction, repair or renovation of house property, then interest on such loan is deductible form income of house property. But this deduction is allowed on accrual basis only after completion of construction. Preconstruction interest will be allowed in 5 equal installment after completion of construction if loan was taken for purchase of construction of house. But if loan was taken for repair or renovation then no preconstruction interest is allowed for deduction. In case of self occupied property or the property which could not be self occupied due to employment at some other place then there is a maximum limit of deduction u/s 24 i.e Rs. 200000/- but if construction could not be completed within 5 year then it is only Rs. 30000/-. But there is no maximum limit of deduction for a property which is not self occupied.
- Deduction of interest on house loan U/s 80EE:- Over and above the deduction provided u/s 80C & U/s 24, an additional deduction of Rs. 50000/- is provided for interest on House loan U/s 80EE.
This Deduction of Section 80EE would be applicable only in the following cases:-
- This deduction would be allowed only if the value of the property purchased is less than Rs. 50 Lakhs and the value of loan taken is less than Rs. 35 Lakhs.
- The loan should be sanctioned between 1st April 2016 and 31st March 2017.
- The benefit of this deduction would be available till the time the repayment of the loan continues.
- This Deduction would be available from Financial Year 2016-17 onwards.
- Deduction of interest on house loan U/s 80EEA :- In Addition to above deductions, an amount of Rs. 150000/- is available u/s 80EEA for payment of interest on house loan taken as per specified conditions. This Deduction of Section 80EEA would be applicable only in the following cases:-
- Loan is taken for low-cost housing and is taken during the period between 1 April 2019 and 31 March 2020, this period is now extended upto 31.3.2022.
- The deduction under this section is available only to individuals.
- A deduction for interest payments up to Rs 1,50,000 is available under Section 80EEA. This deduction is over and above the deduction of Rs 2 lakh for interest payments available under Section 24 of the Income Tax Act.
- Stamp duty value of the house property should be Rs 45 lakhs or less.
- Housing loan must be taken from a financial institution or a housing finance company for buying a residential house property.
- The individual taxpayer should not be eligible to claim deduction under the existing Section 80EE.
- The taxpayer should be a first-time home buyer. The taxpayer should not own any residential house property as on the date of sanction of the loan.
- Carpet area of the house property should not exceed 60 square meter ( 645 sq ft) in metropolitan cities of Bengaluru, Chennai, Delhi National Capital Region (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (whole of Mumbai Metropolitan Region)
- Carpet area should not exceed 90 square meter (968 sq ft) in any other cities or towns.
tax benefits of house loan:-
- Deduction for repayment of principal allowed U/s 80C (maximum 150000/-)
- Deduction for payment of interest allowed U/s 24 (maximum 200000/- for self occupied property.)
- Deduction for interest on house property u/s 80EE (maximum 50000/-)
- Deduction for interest on house property u/s 80EEA (maximum 150000/-)
But remember all of above deductions are subject to various conditions. and Further For FY 2020-21 if assessee opt for the option given U/s 115 BAC for reduced slab rate then he will not be eligible for any of above deduction.
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