Having your own home is an aspiration for most Indians and the benefits of owning one are numerous. Apart from the pleasure of living in your own space, it gives you the benefit of capital appreciation over a long period of time. What’s more, unlike other purchases on a loan, buying a house property on a loan has tax incentives. This works out very conveniently for taxpayers as they can claim various tax benefits against the house property loan.
Let us look at the various tax benefits of taking a home loan.
You can take a home loan for the construction of a house or outright purchase. In the case of construction, it will need to be completed within five years from the end of the financial year in which the loan was taken.
The home loan is repaid in equated monthly installments or EMIs. An EMI has two parts –
- Interest
- Principal repayment
Section 24 of the Income Tax Act allows a deduction of the interest component from your total income up to a maximum of INR 2,00,000 for self-occupied house property(From Assessment Year 2018-19 onwards). If you let out your property on rent, you can claim the full interest paid as a deduction without any upper limit.
The overall loss that one can claim under the head House Property is restricted to INR 2,00,000.
In case the property is in joint ownership, each owner can claim the above deduction in their individual tax return in proportion to the ownership ratio. This means that if you are paying INR 4,00,000 as interest, both owners can claim INR 2,00,000 each in their respective tax returns.
Now let us look at pre-construction interest.
The interest clock starts ticking from the month in which you take the loan. There will be a period when you are paying interest but have still not received possession of the property. However, you cannot claim an interest deduction till you receive the completion certificate or letter of possession. Does this mean you lose the tax benefit of interest for the interim period? No. It certainly doesn’t.
Here is how the pre-construction interest deduction is worked out.
Suppose you have paid a total pre-construction interest of Rs 2,00,000 (of which 150000 is up to 31 March 2022) before you received possession of the property in October 2022. When you file your returns for the financial year 22-23 (Assessment Year 23-24), you will be allowed the following deduction from your total income.
- Full interest for the financial year 2022-23
- ⅕ of 150000 which is the pre-construction interest
You can claim the balance of the pre-construction in a similar fashion over the next 4 years. If the property is sold before the end of this period, no further deductions will be allowed for the unclaimed portion of the pre-construction interest.
Maximum interest deduction under section 24(b) is capped at Rs 2,00,000 which includes current-year interest as well as pre-construction interest.
The tax incentives don’t end here. You get a benefit on your principal repayment as well. You can claim a maximum deduction of INR 150000 under Section 80C on the principal repayment. Again, there is a rider if you wish to claim this deduction, you cannot sell the property within 5 years. Else, the deduction will be added back to income in the year of sale.
Section 80EEA was introduced in Budget 2019 to incentivize first-home buyers with a deduction of up to INR 150000. To claim this the taxpayer must meet the following conditions –
- The registered value of the property doesn’t exceed INR 45 lakh.
- The loan must have been sanctioned between 1.4.2019 to 31.3.2022.
- On the date of loan sanction, the taxpayer is a first-home buyer
In addition to the principal repayment, the home buyer can claim a deduction for stamp duty and registration charges under Section 80C in the year of expenditure but this will be included within the overall limit of INR 150000.
Wrap-Up
The government has always focused on providing incentives to the housing sector so this is a great time to focus on buying your own home. It is a prudent investment that combines capital appreciation with tax benefits with the priceless comfort of having your own piece of paradise under the sun. There is no dearth of excellent developers if you plan to buy a house or construct one and take advantage of the tax incentives.
You can check out Valmark for its range of impeccable properties in various sizes with top-notch luxuries to suit your requirements.
