Section 80C: Tax benefit on Home Loan (Principal Amount)
The amount paid as Repayment of Principal Amount of Home Loan by an Individual/HUF is allowed as tax deduction under Section 80C of the Income Tax Act. The maximum tax deduction allowed under Section 80C is Rs. 1,50,000.
This tax deduction is the total of the deduction allowed under Section 80C and includes amount invested in PPF Account, Tax Saving Fixed Deposits, Equity Oriented Mutual funds, National Savings Certificate, Senior Citizens Saving Scheme etc.
This tax deduction under Section 80C is available on payment basis irrespective of the year for which the payment has been made. The Amount paid as Stamp Duty & Registration Fee is also allowed as tax deduction under Section 80C even if the Assessee has not taken Loan.
However, tax benefit of home loan under this section for repayment of principal part of the home loan is allowed only after the construction is complete and the completion certificate has been awarded. No deduction would be allowed under this section for repayment of principal for those years during which the property was under construction.
Moreover, in case you are planning to buy an under-construction property as it is priced at a lower price as compared to a fully completed property, you are here also requested to note that GST is also levied on under-construction Property. However, no GST is levied on properties on which construction has been fully completed.
House Property should not be sold within 5 years
Section 80C(5) also states that in case the assessee transfers 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, then no deduction and tax benefit on Home Loan shall be allowed under Section 80C. The aggregate amount of tax deduction already claimed in respect of previous years shall be deemed to be the Income of the Assessee of such year in which the property has been sold and the Assessee shall be liable to pay tax on such income.
Tax benefit on Home Loan (Interest Amount)
Tax Benefit on Home Loan for payment of Interest on Home Loan can be claimed as Deduction under Section 24 as well as under the newly inserted section 80EEA (Amended by Budget 2020)
Section 24: Income Tax Benefit on Interest on Loan for Purchase/Construction of Real Estate
Tax Benefit on Home Loan for payment of Interest is allowed as a deduction under Section 24 of the Income Tax Act. As per Section 24, the Income from House Property shall be reduced by the amount of Interest paid on Loan where the loan has been taken for the purpose of Purchase/ Construction/ Repair/ Renewal/ Reconstruction of Property.
The maximum tax deduction allowed under Section 24 of a self-occupied property is subject to a maximum limit of Rs. 2 Lakhs (increased in Budget 2014 from 1.5 Lakhs to Rs. 2 Lakhs).
Please Note: In case a property has not been self-occupied by the owner by reason of the fact owing to his employment, business or profession carried on at any other place, he has to reside at that other place not belonging to him, then the amount of tax deduction allowed under Section 24 shall be Rs. 2 Lakhs only.
It is also important to note that this tax deduction of Interest on Loan under Section 24 is deductible on payable basis, i.e. on accrual basis. Hence, deduction under Section 24 can be claimed on yearly basis even if no payment has been made during the year as compared to Section 80C which allows for deduction only on payment basis.
Moreover, if the property is not acquired/constructed completed within 5 years from the end of financial year in which the loan was taken, the interest benefit in this case would be reduced from 2 Lakhs to Rs 30 thousand only. (Limit increased from 3 years to 5 years from FY 2016-17 onwards)
Deduction for Non-Self Occupied Property {Budget 2017 Update}
In case of non-self occupied property, the interest paid is reduced from the Rent paid to arrive at the Income from House Property. In some cases, it may happen that the Interest paid is more than the Rent earned which will result in Loss from House Property. This Loss is allowed to be set-off with Income from any other head.
The Finance Act 2017 announced on 1st Feb 2017 has put a restriction to the maximum amount of Loss under head House Property that can be set-off from other heads of Income. From Financial Year 2017-18 onwards, Loss of a maximum of Rs. 2 Lakhs is allowed to be set-off with Income from other heads. The amount which is not set-off shall be carried forward to future years.
Thus, the maximum deduction for interest which can be claimed for Self Occupied Property is Rs. 2 Lakhs and for non self occupied property – the loss under head house property should not be more than Rs. 2 Lakhs (i.e. Rent Received – Std Deduction – Property Taxes – Interest rapid should not be more than Rs. 2 Lakhs). In case of self occupied property, the interest above Rs. 2 Lakhs will get lapsed and cannot be claimed as a deduction whereas in case of Non-Self Occupied property, the Loss from House Property which is over and above Rs. 2 Lakhs will get carried forward to the next year and allowed to be claimed in the next year.
