Tax benefits by way of deductions from income are allowed against principal repayment and interest on a home loan, and transfer charges incurred to purchase house property.
To keep the housing sector of India afloat and keep the taxpayers encouraged for buying new homes, the Income-tax department has provided certain key benefits for availing of home loans.
Here are the key tax benefits available against home loans availed for purchase/construction of the house property:
1. Payments made towards the principal component
Payments made towards the principal component of the housing loan borrowed for the purchase/construction of the house property qualifies for deduction under the limit of Rs 1.5 lakh of Section 80C.
2. Charges incurred to buy a house property
Any expenses incurred in respect to the stamp duty, registration charges, or any other charges directly related to the transfer of the property are allowed as a deduction under the overall limit of Rs 1.5 lakh of section 80C.
3. Interest on borrowed loans
The Income-tax Act allows the deduction of interest on borrowed loans for purchase/construction of a house property.
a. In respect of self-occupied residential property, a deduction of Rs 2 Lakhs is allowed against the interest incurred on the housing loan availed for acquisition or construction.
However, the deduction amount allowed is reduced to Rs 30,000 (i) if the construction of the new house property is not completed within five years from the end of the financial 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 property
b. In respect of let-out/ rented property, actual interest incurred on loan availed for acquisition, construction, repairing, re-construction shall be allowed as deduction.
4. Pre-construction interest
Pre-construction interest or interest pertaining to the period prior to the year of acquisition/ construction of the house property shall be allowed as a deduction in five equal installments, beginning from the year in which the property was first constructed.
Note: The total deduction limit of Rs 2 lacs shall apply for both pre & post construction period interest in case of self-occupied property. You are eligible to set off house property loss only to the extent of Rs 2 lakh in the current year against income under any head. The balance loss needs to be carried forward to the next eight years.
5.Benefits of joint ownership
In case of joint ownership of the house property, wherein the home 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. Further, each joint owner can also claim deduction under section 80C for principal component repayment up to Rs 1.5 Lakh in their tax return individually.
The benefits of interest deduction and repayment of housing loans are available to both residents and non-residents Indians.
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