To alleviate the burden of a home loan, the government offers
several tax concessions to borrowers. While most people may be broadly aware of
home loan tax benefits, there are several other nuances that need to be
highlighted.
Principal repaid on home loan
The principal amount repaid on the home loan taken can be
deducted from your income up to Rs 1.5 lakhs under Section 80C. This deduction,
however, comes with a couple of caveats. You can only avail of this deduction
after construction of your house is complete and possession is received, and
not while construction is underway. “When your developer delays the possession
of your apartment, this is one more way in which he hurts your interests,”
points out Rajendra Kumar Chauhan, a Delhi-based chartered accountant.
Secondly, speculators should know that you can’t avail of
this deduction on principal repayment, if you sell the house within five years
of taking possession. If you do, you will have to reverse the deduction. This
means that all the deduction you have availed of so far, will be treated as
income in the year of sale and taxed entirely.
Interest repaid
Tax saving is also available on interest repaid on a Home Loans in
India. However, the deduction is different for a self-occupied
property than for a house that you intend to rent out.
Self-occupied: If you have taken a home loan to buy a house
that you intend to live in, the interest paid on this loan is eligible for a
deduction up to Rs 2 lakhs under Section 24 of the Income Tax Act. This
deduction is also available only after you have received possession of the
house. Construction must be completed within three years from the end of the
financial year in which the loan was taken. The interest paid while the house
is under construction, will continue to accumulate. You can claim deduction on
this amount for five years after possession. So, if you paid a total interest
of Rs 6 lakhs while the house was under construction, you can avail of a
deduction of Rs 1.2 lakhs for the next five years after possession.
In case you don’t receive possession within three years of
taking the loan, you can only claim a deduction of Rs 30,000 each year. “If
your job is in another city and you don’t live in the house that you bought for
self-use, then the house will be treated as self-occupied and you may avail of
deduction on interest repaid up to Rs 2 lakhs,” explains Arvind Poddar, a Delhi-based
chartered accountant.
Second property: If you buy a second property from which you
intend to earn rental income, the deduction on interest repaid, is even more
generous. Here, the entire interest repaid can be claimed as a deduction. In
other words, the ceiling of Rs 2 lakh doesn’t apply in this case.
You will however have to show the rent that you earn from
this property, as ‘income from housing’. This will be added to your total
income. However, you are entitled to deductions on rental income. First, you
may deduct all the taxes (such as property tax) that you pay on the house. You
can also avail a deduction of another 30% for repairs and maintenance.
There is a catch here which to some may appear illogical.
Even if the second house remains vacant, it will be treated as being on rent.
You will have to show a notional rental income from it based on market rates,
which will be taxable after factoring in the two deductions mentioned above.
Deduction on home loan insurance: If you bought a home loan
insurance cover (a single-premium policy) along with the loan, you can avail of
deduction on the premium paid under Section 80C.
[Source: https://housing.com/news/home-loans-guide-claiming-tax-benefits/]
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