Save Income Tax On Your Home Loan For FY 2023-24

Introduction

The Income Tax Act has various provisions for an individual to take benefit of and claim deductions for tax purposes. These deductions are an incentive for individuals to make residential real estate purchases. There are two components to loan repayments

• Principal
• Interest

There are various deductions available. It is also important to note which component is allowed as a deduction in a specific section.

Overview

Section 24B

1. Purpose of Loan: The deduction is applicable for interest paid on loans taken to acquire or construct a property. It also includes loans taken for repairs, renewals, or reconstruction as well.

2. Property Type: The property can be either self-occupied or let-out. In the case of self-occupied property, the maximum deduction is limited to a specified amount, while there is no upper limit for let-out properties. The deduction can be claimed by Residents and Non-residents.

3. Interest Limit for Self-Occupied Property: The maximum deduction allowed is up to Rs 2 lakh per financial year for Self-Occupied Properties. This limit is per taxpayer, so if you co-own the property, the limit is applicable individually.

4. Joint Loan: In the case of a joint loan, each co-borrower is eligible for a separate deduction based on their share in the loan.

5. Construction Period: The maximum limit for the construction period is five years. The interest deduction of the full 2 lakh is only available for five years from the financial year in which the loan was taken. If the construction period exceeds five years, then only an amount of Rs 30,000 can be claimed as an interest deduction.

6. Pre-Construction Interest:

• Pre-construction interest refers to the interest paid on a housing loan during the period when the construction of the property is underway but not yet completed. In the context of the Income Tax Act, 1961, this interest is eligible for deduction under Section 24.
• The interest paid during the pre-construction period can be accumulated and claimed as a deduction in five equal installments beginning from the financial year in which the construction is completed.
• If there arises a Loss from the House Property Head while computing the Income on availing of Pre-construction period interest, such a loss is allowed to be claimed and set off or carried forward, accordingly.
• Example: Suppose you take a housing loan and are paying it off while the construction is underway. Say the Interest portion of the monthly EMI is Rs 15,000 per month and it takes 3 years for the construction to be complete.

Total Interest = Rs 15,000*12*3 = Rs 5,40,000

Pre-construction Interest allowed to be claimed from year 4

= Rs 5,40,000/5
= Rs 1,08,000 per year for 5 years

Post-Construction Period of Year 4 = Rs 15,000*12 = Rs 1,80,000

Section 24B Interest Deduction allowable

= Rs 1,08,000 + Rs 1,80,000
= Rs 2,88,000

Restricted to Rs 2,00,000 if the property is Self-occupied.

7. Loss on House Property: Can only be claimed and set off or carried forward up to Rs 2,00,000 in a particular year.

8. Interest Certificate: To claim the deduction, obtaining an interest certificate from the lender specifying the amount of interest paid during the financial year is essential.

Section 80C

1. Maximum Deduction: A deduction of Rs 1.5 lakh on the principal portion of the loan repaid is available for both Self-Occupied and Let-out properties. However, expenses can be claimed as a deduction only in the year they were incurred. Stamp Duty and Registration charges can also be claimed under this section but this can only be done once. Can be claimed by residents and non-residents both.
2. Lock-in Period: The property for which the home loan is taken should not be sold within five years from the end of the financial year in which possession is obtained. If you sell the property before this lock-in period, the deductions claimed earlier under Section 80C are to be reversed and included in income for the year in which such a transfer was made. This is also applicable if the principal repaid is refunded to the borrower for any reason.

Sections 80EE and 80EEA were introduced under the objective of ‘Housing for all’. These sections provide additional interest deductions specifically for low-cost housing. The deduction can be claimed by both Residents and Non-residents. The deduction can also be claimed for a self-occupied property or let-out property as in, it is not compulsory to claim the property to be Self-occupied to avail of the deduction.

Section 80EE

• Eligibility Criteria: The deduction under Section 80EE is available to individual taxpayers, including Hindu Undivided Families (HUFs), who are first-time homebuyers.
• Conditions for Deduction:

1. The loan must be taken from a financial institution or a housing finance company.
2. The loan should have been sanctioned between 1st April 2016 and 31st March 2017.
3. The loan amount should not exceed Rs 35 lakh.
4. The value of the residential property for which the loan is taken should not exceed Rs 50 lakh.
5. The taxpayer should not own any other residential property at the time of sanction of the loan.

• Deduction Amount: The deduction is available on the interest payable on the loan, up to a maximum of Rs 50,000 per financial year. This deduction is in addition to the deductions available under Section 24 (interest on housing loan) and Section 80C (principal repayment).
• Continuation of Deduction: The deduction is available for a maximum of five consecutive assessment years, starting from the year in which the loan is sanctioned.

Section 80EEA

• Eligibility Criteria: The deduction under Section 80EEA is available to individual taxpayers, including Hindu Undivided Families (HUFs), who are first-time homebuyers.
• Conditions for Deduction:

1. The loan must be taken from a housing finance company or recognized financial institution.
2. The loan should have been sanctioned between 1st April 2019 and 31st March 2022.
3. The stamp duty value of the residential property for which the loan is taken should not exceed Rs 45 lakh.
4. The taxpayer should not own any other residential property at the time of sanction of the loan.

• Deduction Amount: The deduction is available on the interest payable on the loan, up to a maximum of Rs 1,50,000 per financial year. This deduction is in addition to the deductions available under Section 24 (interest on housing loan) and Section 80C (principal repayment).
• Continuation of Deduction: The deduction is available for a maximum of five consecutive assessment years, starting from the year in which the loan is sanctioned.
• Carpet Area Conditions: The carpet area of the property acquired is to be limited to 60 square metres (645 sq ft) in metropolitan cities of Bengaluru, Chennai, Delhi National Capital Region (limited to New Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (whole of Mumbai Metropolitan Region). Carpet area should not exceed 90 square metres (968 sq ft) in the case of any other cities or towns.