To preserve the housing sector of India afloat and preserve the taxpayers encouraged for obtaining new residences, the Income-tax division has supplied specific important rewards for availing of residence loans. Tax rewards by way of deductions from revenue are permitted against principal repayment and interest on a residence loan, transfer charges, or any other charges incurred to buy property house.
Here are the important tax rewards out there against residence loans availed for buy/building of the property house.
Payments produced towards the principal element
Payments produced towards the principal element of the housing loan borrowed for the buy/building of the property house qualifies for deduction below the limit of Rs 1.5 lakh of Section 80C. However, this deduction will be reversed if the house on which deduction is claimed is sold inside a lock-in period of 5 years from the date of buy.
Also, any expenditures incurred in respect to the stamp duty, registration charges, or any other charges straight connected to the transfer of the house is permitted as a deduction below the general limit of Rs 1.5 lakh of section 80C. This deduction is permitted only in the year of actual expenditure.
Section 24 (b) of the Income-tax Act enables the deduction of interest 0n borrowed loans for buy/building of a property house.
In respect of self-occupied residential house, a deduction of Rs 2 Lakhs is permitted against the interest incurred on the housing loan availed for acquisition or building. However, the deduction quantity permitted is decreased to Rs 30,000 (i) if the building of the new property house is not completed inside 5 years from the finish of the monetary year in which the loan is borrowed, and (ii) In case of the loan availed is for reconstruction, repairs or renewals of the self-occupied residential house
In respect of let-out/ rented house, actual interest incurred on loan availed for acquisition, building, repairing, re-building shall be permitted as deduction.
Pre-building Interest
Pre-building Interest or Interest pertaining to the period prior to the year of acquisition/ building of the property house shall be permitted as a deduction in 5 equal installments, starting from the year in which the house was initial constructed.
The total deduction limit of Rs. 2 lacs shall apply for each pre & post building period interest in case of self-occupied house. You can claim the pre-building interest for a let-out house topic to the limits on set-off of loss arising from excess interest payments. You are eligible to set off property house loss only to the extent of Rs 2 lakh in the existing year against revenue below any head. The balance loss requirements to be carried forward to the subsequent eight years.
Section 80EE
- Section 80EE was introduced from FY 2017-18 as an extra deduction up to Rs 50,000 as against the interest payable on loan taken for the goal of acquisition of a property house topic to the following situations:
- The loan has been sanctioned by Financial institution through the monetary year 2016-17
- The quantity of loan sanctioned is much less than Rs 35 Lakhs
- The worth of the residential house does not exceed Rs 50 Lakhs
- The assessee is the initial time owner of the property house as on the date of sanction of loan
- If any deduction is claimed below this section, no deduction shall be permitted of such interest below any other provision.
The interest deduction below section 80EE is out there till the repayment of the loan, topic to satisfying the above situations. The interest deduction continues to be out there for an person whose loan was sanctioned inside the limits and situations prescribed in section 80EE.
Section 80EEA
Section 80EEA has been additional introduced from FY 2019-20 also to extend and improve the rewards permitted below Section 80EE for low-expense housing.
- This section enables an extra deduction up to Rs 1,50,000 for interest payable on residence loan taken topic to the following situations:
- The assessee ought to be an person.
- The loan is sanctioned by the Financial institution or housing finance organization in between 1 April 2019 and 31 March 21 (one particular-year extension granted beyond the 31 March 2020 in Budget 2020)
- The worth of the residential house does not exceed Rs 45 Lakhs.
- The assessee is the initial time owner of the property house as of the date of sanction of loan.
- The person should really not be eligible to claim interest deduction below section 80EE.
Please note, A deduction for interest payments below Section 80EE and 80EEA as talked about above is in addition to the deduction of Rs 2 lakh out there below Section 24 of the Income Tax Act. To avail maximum advantage of these deductions, the deductible limit of Rs 2 Lakh below Section 24 should really be exhausted initial. Then one particular should really go on to claim the extra rewards below Section 80EE/ 80EEA. Therefore, taxpayers can claim a total deduction of Rs 3.5L for interest on the residence loan, if they meet the above situations of section 80EEA and Rs. 2.5 lakhs in case they meet situations of earlier introduced section 80EE.
In case of joint ownership of the property house wherein the residence loan is also sanctioned jointly, all the joint borrowers are eligible to claim the deduction u/s 24 for interest payment up to Rs 2 lakh and deduction below section 80EE/80EEA, as the case might be. Further, every single joint owner can also claim deduction below section 80C for principal element repayment up to Rs 1.5 Lakh in their tax return individually. The rewards of interest deduction and repayment of housing loans are out there to each residents and non-residents Indians.
by Archit Gupta, Founder, and CEO – ClearTax