Repayment of housing loan is through EMI which consists of principal and interest component. As the repayment comprises of 2 different components, the tax benefit on home loan is governed by different sections of the Income Tax Act and these are claimed as tax deductions under different sections while filing the Income Tax Return.
The Sections under which Tax Benefit on Home Loan can be claimed are explained below:-
Section 80C: Tax benefit on Principal amount on Home Loan
The maximum tax deduction allowed under Section 80C is Rs. 1,50,000. 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.
Section 24: Income Tax Benefit on Interest on Home Loan
The maximum tax deduction allowed under Section 24 of a self-occupied property is subject to a maximum limit of Rs. 2 Lakhs. Moreover, if the property is not acquired/constructed completed within 3 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 30,000 only. This limit of 3 years has been increased to 5 years from Financial Year 2016-17 and onwards.
In case the property for which the Home Loan has been taken is not self-occupied, no maximum limit has been prescribed in this case and the taxpayer can take tax deduction of the whole interest amount under Section 24.
It is also important to note that this tax deduction of Interest on Home Loan under Section 24 is deductible on payable basis, i.e. on accrual basis. Hence, deduction under Section 24 should 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.
Amendment in Budget 2017
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.
Let’ say Mr. A has house has a rental income of Rs 40,000 per month and he is paying home loan interest of Rs 10 lakhs p.a. He has income from remaining heads of Rs 12 Lakhs p.a.
Income from house property
| FY 2016-17 | FY 2017-18 | |
| Rental Income (40,000*12) | 4,80,000 | 4,80,000 |
| Less : Municipal Taxes Paid | 10,000 | 10,000 |
| Less: Standard Deduction(30% * 4,80,000) | 1,44,000 | 1,44,000 |
| Less: Interest on House loan | 10,00,000 | 10,00,000 |
| Loss from house property eligible to be set off | (6,74,000) (no limit) | (2,00,000) (maximum limit allowed ) |
Section 80EE: Income Tax Benefit on Interest on Home Loan (First Time Buyers) – FY 2016-17 onwards
Maximum tax deduction allowed under Section 80EE is Rs. 50,000. This incentive would be over and above the tax deduction of Rs. 2,00,000 under Section 24 and Rs. 1,50,000 under Section 80C.
Conditions for availing deduction under section 80EE:-
1. Purchaser should be first time buyer i.e. he has never purchased any house and now he is going to purchase a house.
2. This deduction would be allowed only if the value of the property purchased is less than Rs. 50 Lakhs and the value of loan taken is less than Rs. 35 Lakhs.
3. The loan should be sanctioned between 1st April 2016 and 31st March 2017.
4. The benefit of this deduction would be available till the time the repayment of the loan continues.
5. This Deduction would be available from Financial Year 2016-17 onwards
Section 80EEA: Income Tax Benefit on Interest on Home Loan (First Time Buyers) – FY 2019-20 onwards
Maximum tax deduction allowed under Section 80EEA is Rs. 1,50,000. This incentive would be over and above the tax deduction of Rs. 2,00,000 under Section 24 and Rs. 1,50,000 under section 80C.
Conditions for availing deduction under section 80EEA:-
- Loan Sanctioned between 1.4.2019 to 31.3.2020 from financial institution /HFC
- Stamp Duty Value of House Property (HP) not exceed Rs.45 Lakh
- Not own any residential HP on the date of sanction of loan i.e. 1st time buyer
- when deduction is allowed under Section 80EEA , not allowable in other section
- Only to Individual (not for HUF, AOP etc)
- Rs.1.50 Lakh is over and above Rs.2 Lakh u/s 24, hence total Rs. 3.50 Lakh
- Carpet area of HP not exceed 60 sqmtr in metropolitan cities including Delhi NCR & carpet area not exceed 90 sqmtr in any other cities
- if a person jointly owns HP with spouse and they both paying the installments of the loan, then both of them can claim this deduction
- Section 80EEA Interest deduction is available from FY 2019-20 onwards (AY 2020-21)