Tax Incentives on Home Loan

Tax incentives on home loan encourage people to invest in a house or property. Acquiring a home loan for buying or building a house makes you eligible for tax rebates under Income Tax Act. The interest towards home loan taken for construction, repairs, renewal or reconstruction of existing house property is also eligible for deduction. Income tax benefit on home loan is one of the most attractive benefits of taking a home loan.

These tax deductions are capped at 1 lakh for the principal repaid and 1.5 lakhs for the interest repaid in that particular financial year, for which you are filing your returns. Another aspect that needs to be remembered while buying a house under construction that you can claim tax benefits only after the construction of the house is completed. If the house is not ready or is still under construction, then no deduction either on principal or interest would be allowable and permissible under the Income Tax Act.

Terms and conditions for availing Tax benefits on Home Loans

• According to the Income Tax Act, tax rebates can only be claimed by the loan applicant.

• The acquisition and construction should be completed within 3 years from the end of the financial year in which capital was borrowed.

• Tax deductions can be claimed on housing loan interest payments, subject to an upper limit of Rs 1,50,000 for a financial year.

• As per the newly introduced Sections 80C read with section 80CCE of the Income Tax Act, 1961 the principal repayment up to Rs. 100,000 on your home loan will be allowed as a deduction from the gross total income subject to fulfillment of prescribed conditions.

• No tax benefits are available for loan repayments made during a financial year in which the construction of the property is not complete.

• A borrower can avail of the deduction even if he has bought a house in another city without losing out on the exemption for house rent allowance.

• In some cases, the disbursement of the loan is linked to the stages of construction of the property. In such case, the borrower can claim deduction for the interest under Section 24(b) in five equal installments after the construction is completed. Do note that the limit on deduction in a year remains Rs 1.5 lakh.

• There is no tax deduction if the loan is taken to buy a plot or land.

• If a person has taken a loan for repair of house or flat, a deduction of maximum amount of Rs 30,000 is permissible and that too within the said amount of Rs 1,50,000.

• If the house is let out by the tax payer, then the entire interest irrespective of the amount is fully deductible under Section 24 against income from House Property.

• A husband and wife, both of whom are tax-payers with independent income sources, get tax deduction benefits, with respect to the same housing loan, to the extent of the amount of loan taken in their own respective name.