A. Tax Deduction towards principal repayment:
The maximum limit of repayment of housing loan qualifying for deduction under Section 80C of the Income Tax Act is Rs.1,50,000/- (including Stamp Duty, Registration Fee incurred for the purpose of transfer of such residential house property).
This tax deduction under Section 80C is available on payment basis irrespective of the year for which the payment has been made, provided that the assesse does not transfer the house property on which he has claimed tax deduction under Section 80C, before the expiry of 5 years from the end of the Financial Year in which the possession has been obtained by him.
B. Tax benefits on the Interest component of home loan:
- The interest component in the EMI towards the Home loan can be claimed as deduction from "income from house and property" under Section 24 of the Income Tax Act.
- Section 24 states that the maximum tax deduction allowed under Section 24 is Rs. 2 lakh in case of self-occupied property or one that is constructed out of borrowed funds. If the property is not self-occupied i.e. it is rented out, there is no maximum limit- the entire interest amount is allowed as deduction.
- The interest payments for the year shall be considered as loss under the head "income from house property". These losses can be adjusted in that same year against other heads of income including salary.
- In case of self-occupied property, the interest benefit drops to Rs.30,000, if the property is not constructed within 3 years from loan initiation. This limit of 3 years has been increased to 5 years from Financial Year 2016-17 onwards.
- The interest on borrowed funds in pre-construction period can be claimed from the year when the construction is completed in equal installments over a span of 5 years.
- For First Time Buyers, an additional deduction of Rs.50,000 for Interest on Home Loan is available under Section 80EE, which is over and above the tax deduction of Rs. 2, 00,000 under Section 24 and Rs.1,50,000 under Section 80C.
The conditions for the 80EE deduction are as follows:
- 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 the Financial Year 2016-17 and onwards.