How to Get Maximum Home Loan Tax Benefits in India by 2022

 

Section 80C - Tax benefit on Home loan (Principal amount)

Section 80C (the Income Tax Act) allows tax deductions for the amount paid as Repayment Of Principal Amount Of Home Loan by an Individual/ . Section 80C provides for Rs. 1,50,000 tax deduction. 1,50,000.

This tax deduction is the sum of the deductions allowed by Section 80C.

This Section 80C tax deduction can be claimed on a per-payment basis regardless of the year that the payment was made. Section 80C allows for tax deduction of the Stamp duty & registration fee even if an Assessee hasn't taken a loan.

But, the tax benefit of a home mortgage under this section to repay principal is only after construction is completed has been approved. This section doesn't allow any deduction for principal repayments during construction years.

If you're looking to purchase an underconstruction property due to its lower cost than fully completed properties, you should note that tax is also applicable to Property. Properties that are not yet completed do not have to pay GST.

House Property Should Not Be Sold Within 5 Years

Section80C(5) provides that, if an assessee sells the house property for which he has claimed tax deduction under Section80C before the expiry date of 5 years from when the possession was acquired by the assessee, then Section 80C will not allow any deduction or tax benefit on a Home Loan. The Assessee will be subject to tax for any tax deductions claimed for previous years.

Tax benefit on Home loan (Interest Amount).

Tax Benefit for Home Loan Payment of Interest can be claimed as a Deduction under Article 24, as well as under section 80EEA (Amended in 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 according to Section 24 of the Income Tax Act. Section 24 allows for income from House Property to be reduced by the interest paid on Loan when the loan was taken for the purpose or purchase/ construction/ repair/ renewal/ reconstruction of Property.

Maximum limit for tax deductions under Section 24 on self-occupied property: Rs. 2 Lakhs (increased to Rs. 2 Lakhs).

Please Note: If a property was not used by its owner due to his employment, business, profession or other activities, he will have to live there. In this case, Rs. 24 allows for a tax deduction. 2 Lakhs.

Also, note that interest on loans under Section 24 are deductible on a basis of payable. Accrual Basis. Section 24 allows for deductions on a yearly basis even though no payments were made during the year. This is in contrast to Section 80C which allows only deductions on a payment basis.

The interest benefit will also be reduced if the property has not been acquired/constructed within 5years from the end the loan was made. This would reduce the amount from 2 Lakhs to only Rs 30 thousand. (Limit increased from three years to five years in FY 2016-17).

Deduction for Non Self Occupied Properties Budget 2017 update

The Rent paid to obtain the Income from House Property is deducted from any interest paid for property that is not self-occupied. In certain cases, the Interest paid could be more than the Rent earned. This can lead to Loss from House Property. This loss may be offset against income from other heads.

The Finance Act 2017 was announced on 1 February 2017. It has set a ceiling on the maximum amount of loss under head House Property which can be set-off with other heads of income. Starting in Financial Year 2017-18, losses up to Rs. It is possible to set-off Income from other sources up to 2 Lakhs. The amount not set aside shall be carried forward to the next year.

These new provisions were inserted into the Income Tax Act and are very nicely explained in this link Income Tax treatment of loss from house property.

Self Occupied Property can claim a maximum of Rs. 2 Lakhs in interest deductions. For non-self occupied property, the loss under head property should not exceed 2 Lakhs. 2 Lakhs, i.e. Rent received - Std deduction - Property taxes - The maximum amount of interest rapid should be Rs. 2 Lakhs). If the property is self-occupied, the interest over Rs. 2 Lakhs in self-occupied property will be lost and not allow for deduction. Non-Self Occupied property will have the Loss from House Property, which is greater than Rs. 2 Lakhs are carried forward to the following year and allowable to be claimed the following year.

Income Tax treatment of pre-construction interest

In many cases, the amount to purchase a property can be paid even before it is constructed. Some homebuyers take out a loan and purchase the property before construction is complete. Then, they start paying EMIs to Bank.

Section 24 states specifically that the tax deduction for interest payments is not permitted in these cases. In such cases,

1. When a loan is taken to repair/renew/rebuild: No tax deduction allowed for interest paid before completion
2. If the Loan is used to Purchase/Construct: The Interest paid before construction is completed should be combined and the whole amount shall qualify for tax deduction in 5 equal installments starting in the Year in which construction was completed.

For example, Mr. A buys a house in New Delhi and takes a loan amount of Rs. 10,00,000.00 loan from a Bank, with 10% interest. Construction was completed by April 2011.

Section 24 (Income Tax Act) states that tax deductions for the payment of interest would be permitted only starting with financial year 2011. However, interest paid on a loan before construction is completed (i.e. Rs. 2,00,000) would be allowed to be tax deducted for the next five Financial years @ 40,000. Commencing with Financial Year 2012-12. (Simplified amounts were used in this example as a simplification.

Important Points:-

1. Interest paid on an outstanding amount cannot be tax deducted (ShewKshan Bhatter v. CIT-1973) 89ITR 61(SC).
2. This tax deduction can only be claimed if the construction is completed in the 5 year period following the financial years, during which capital was borrowed.
3. The taxpayer can not claim any deduction for the Commission Paid to Arrange the Loan
4. If the taxpayer is not receiving any income from their house property but is paying Int on Home Loan and Municipal Taxes, this would be loss under head Income From House Property. This loss under Head Income From House Property is allowed to be offset against income from other head in the same financial year.
5. If the loss cannot be offset against income received from other sources within the same financial year the loss can be carried forward to the future and set off against income arising in House Property for each of the next 8 financial years.
6. Only those who have acquired or constructed the property using the Borrowed Funds are eligible to claim the Tax Benefits of Interest on a Home Loan. It is not accessible to the Successor.