Tax Benefits Information

Tax Benefits are enjoyed on both Interest paid & the principal repaid by the home loan borrower. Under Section 24(d) of Income Tax, a maximum of Rs. 1,50,000 of interest payable can be deducted on the home loan.

Under Section 80(c) of Income Tax, the eligibility for tax deduction of the Principal amount for the repayment of loan along with other savings & investments is allowed up to the amount of Rs. 1,00,000.

Section 80C: Tax benefit on Home Loan (Principal Amount)

The maximum tax deduction amount allowed under Section 80C of the Income Tax Act to be paid as Repayment of Principal Amount of Home Loan by an Individual/HUF is Rs. 1,50,000. (Increased from 1 Lakh to Rs. 1.5 Lakh in Budget 2014)

This tax deduction under Section 80C is can be made via payment basis irrespective of the year for which the payment has been made. The amount for tax deduction under Section 80C as Stamp Duty & Registration Fee is accepted even if the Assessee has not taken Loan.

Tax Benefit on Home Ladn: 80EE, Section 24 & 80C

One of the vital guidelines that needs to be remembered when taking a Home Loan is the Tax Benefit. In order to further elaborate the Tax Benefit on Home Loan, the Repayment of Home Loan would be divided into 2 components:

  • Repayment of the Principal Amount
  • Repayment of the Interest on Home Loan

Owing to the fact that the repayment comprises of 2 different components, the tax benefit on home loan is ruled by separate sections of the Income Tax Act and these are claimed as tax deductions under different sections while filing the Income Tax Return.

Tax Benefit on Home Loan (Interest Amount)
Section 24 of the Income Tax Act allows the deduction of tax benefit on home loan for payment of interests. As per this Section, the earnings from the House Property would be reduced by the aggregate sum of Interest paid on Home Loan where the loan has been accepted for the purpose of Renewal/Purchase/Reconstruction/Repair/Construction of a Residential House Property.

A maximum tax deduction limit of Rs. 2 Lakhs is allowed under Section 24 for a self-occupied property.(increased in Budget 2014 from 1.5 Lakhs to Rs. 2 Lakhs). Please Note: In case a property has not been occupied themselves by the owner owing to the fact of his employment, business or profession carried on at any other place, if they have to reside at another place not belonging to them, then the amount of Rs. 2 Lakhs only shall be the tax deduction allowed under Section 24.

Particulars Section 24 Section 80C
Tax Deduction allowed for Interest Principal
Basis of Tax Deduction Accrual basis Paid basis
Quantum of Tax Deduction allowed Self Occupied Property:Rs. 2,00,000 Non Self Occupied Property: No Limit Rs. 1,50,000
Purpose of Loan Purchase/ Construction/ Repair/ Renewal/ Reconstruction of a Residential House Property. Purchase / Construction of a new House Property
Eligibility for claiming Tax deduction Purchase/ Construction should be completed within 3 years Nil
Restriction on Sale of Property Nil Tax Deduction claimed would be reversed if Property sold within 5 years

Section 80EE: Income Tax Benefit on Interest on Home Loan (First Time Buyers)

The Tax Act under this Section grants an additional tax deduction of Rs. 1,00,000 to individuals buying a home for the first time with respect to the Interest on Home Loan provided that:

  • The Loan is granted between the periods of 1st April 2016 to 31st March 2017
  • The Amount of Rs. 25,00,000 is not exceeded as the loan granted for the acquisition of Residential Property
  • The net worth of the Residential Property should not go over Rs. 40,00,000
  • On the date of sanction of Loan, the Assessee should not own any House Property
  • The deduction that comes under Section 80EE is only available for Financial Year 2016-17
  • Rs. 1 Lakh is the maximum amount that the deduction under Section 80EE allows that is valid for the Financial Year of 2016-17. However, if the interest to be paid in the Financial Year of 2016-17 does not exceed Rs. 1 Lakh, the balance amount shall be granted as deduction in the Financial year of 2016-17.
  • To put it simple, if the taxpayer has only claimed Rs. 40,000 as deduction whereas a deduction of Rs. 1,00,000 was allowed, the balance left being Rs. 60,000 which was not claimed in the financial year of 2016-17 can be claimed in the financial year of 2017-18.
  • Another amendment was brought in the Budget of 2013 regarding real estate. As per the new amendment, a deduction of @ 1% would be liable for TDS on Property.
  • The 3 Sections mentioned above regarding the Tax Benefits on Home Loans have been summarized as under:
Particulars Quantum of Deduction (Rs.)
Self Occupied Property Non-Self Occupied Property
Section 24 2,00,000 No Limit
Section 80C 1,50,000 1,50,000
Section 80EE 1,00,000 1,00,000

Please Note:

The tax deductions are based on per person, not Property. Therefore, if you have purchased a property jointly for which a joint home loan has been taken, each person who repaid the amount would be eligible to claim the entire deduction separately.

If you are taking Tax Benefit of HRA Allowance for a rented premise, then you can claim Tax benefit on home loan under Section 24, Section 80EE & Section 80C.

For claiming the above tax deductions, it is necessary to furnish the statement provided by the lender clearly stating the amount to be paid towards Interest and Principal. After claiming the above deductions, the balance Income of an Individual would be taxed as per the Income Tax Slab Rates.