What is the benefit of home loan in income tax?

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The Indian government has always demonstrated a strong willingness to encourage people to invest in homes. Because of this, Section 80C permits a tax deduction for house loans. Additionally, there are several tax advantages that come with home loans when you purchase a residential property. This article will guide you about important information regarding the benefit of home loan in income tax.

Conditions for deductions of Home Loan in ITR Filing

A home loan must be taken for the purchase/construction of a house. If it’s taken to construct the house it has to be paid off within five years of the end date of the financial year from the year in which the loan was taken.

As you might know, Home Loan or EMIs of home loan has two parts:

  • Interest payment
  • Principal repayment

The interest component of EMI paid during the entire year can be deducted from your tax liability in  Income Tax Return Filing up to a limit of ₹2 lakh under Section 24.

Furthermore, Beginning with the assessment year 2018-19 onwards, the highest deduction for interest on houses that are occupied by homeowners  is two lakh rupees.

Under Sections 24, 80C, and 80EEA of the Income Tax Act of 1961, a person who has acquired a new home for self-occupation or to rent out may claim a tax benefit on home loans. If you share ownership of the property or are a co-borrower, you will also be eligible for tax benefits.

However, the total loss that one is entitled to under the heading “House Property” is limited to Rs.2 lakh only. This deduction is only permissible to beclaimed beginning from the year when the construction of building for the home is finished.

Deduction for the primary amount paid for availing of Home Loan under Income Tax

Section 80C permits a deduction for the principal amount of the EMI paid throughout the year. There is a Rs. 1.5 lakh limit that may be claimed for deduction in ITR Filing.

However, the residential property must not be resold within five years of occupancy in order to qualify for this deduction. If this condition is not met, the earlier deduction will be subtracted from your income in the year of sale.

Can you also claim deduction on registration fee and stamp duty for home loan?

Yes, taxpayers can also claim deductions on registration fee and stamp duty for home loans. However, it is allowed only for the year in which the amount was paid. In addition to the principal repayment deduction, Section 80C also allows for the deduction of stamp duty and registration fees up to a total of Rs 1.5 lakh.

Other Important Deductions under Income Tax Rules for Home Loans

Section 24

Tax benefits are provided on interest paid on the loan to the home pursuant to the Section 24. Tax is calculated in an accrual manner. Tax deductions allowed in Section 24 can be upto Rs.2 lakh.

It is possible to claim this deduction annually, even though there were no instalments during the previous year. If the house was not built within 3 years of the close of the fiscal year during which the loan was made, you are able to claim just Rs.30,000 in deduction.

If the loan is to repair, rebuild or upgrade your house and you don’t receive any tax deductions for the interest that you have paid. If the interest on the loan used to construct or purchase the home has been paid prior to the time that the home was completed, the sum of the loan is deductible by 5 equal instalments over 5 consecutive financial years.

Section 80 EEA

According to Section 80EEA in the Income Tax Act, individuals are entitled to tax benefits up to Rs.1.5 lakhs in a calendar year. The tax deductions can be claimed on interest paid on the mortgage.

How can I claim a tax deduction for a home loan?

The procedure for claiming tax advantages on a house loan is straightforward.

  • Check that the residential property is registered in your name. Otherwise,  Make sure you are a co-owner of the home if there is a shared loan.
  • Determine the total amount of tax deductions you are eligible to claim.
  • Submit the home loan interest proofs to your company so that the TDS may be adjusted.
  • Do ITR Filing on Time

For any further queries on how to claim tax deduction for a home loan or to file ITR Returns hassle-free, you can consult our team of experts at: 8881-069-069. 

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Moreover, you require any kind of guidance related to the Income Tax Return Filing, please feel free to contact our business advisors at 8881-069-069.

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