Tax saving via Home loan
As the financial year draws to a close, a lot of people feel stressed due to the final tax assessment for the year. It needs to be noted on this point that owning a home is not only a dream realization, but home loans are also wonderful tax saving instruments. Individuals having home loans are eligible for tax deductions on both the principal amount as well as on the interest paid for it. Let us take a simplistic look at the various tax deduction options one can avail while servicing a home loan.
Tax benefit on Principal Amount of Home Loan:
The principal amount paid on any home loan can be availed as tax benefits with a maximum deduction of Rs 1,00,000 under section 80C of the Income Tax Act. However, it needs to be noted that the deduction is not available for any principal amount paid on home loan for an under construction property. The maximum deduction allowed under Section 80C of the Income Tax Act is Rs 1, 00,000.
Tax Benefit on Home Loan Interest:
The amount paid as interest towards the repayment of home loan is available for tax deduction under Section 249b of the Income Tax Act 1961. A deduction up to Rs 1,50,000 is available for interest rates.
Illustration:
Suppose Rahul has a total taxable income of Rs 4, 00,000. Let us suppose he has paid Rs 1, 10,000 as the principal repayment for the home loan in the same year as well as Rs 1, 60,000 as interest. Since the total tax deduction available for Rahul is Rs. 1,50,000 towards interest payable & Rs. 1,00,000 for principal repayment of the loan, Rahul’s tax obligation will be reduced to Rs. 1,50,000 ( Rs. 4,00,000 – Rs. 2,50,000 )
Comparison Chart for Tax Benefit on Home Loans:
|
Section 24 |
Section 80c |
|
|
Tax Deduction for |
Interest Amount |
Principal Amount |
|
Maximum Tax Deduction |
Rs. 1,50,000 for self occupied property |
Rs 1,00,000 |
|
Other Eligibility Conditions |
Construction or Purchase must be completed within 3 years of Home Loan |
None |
|
Restrictions |
None |
Tax Deductions would reverse if property is sold before 5 years. |
House Rent and HRA:
A lot of people face a dilemma over availing tax deductions on home loans and house rent allowance or HRA. If one takes a home loan but continues to live in a rented accommodation, one is entitled to both home loan deductions under section 24 and section 80c as well as HRA benefits. The only condition is that one can claim tax benefits on the home loan only if the home is ready to live in during the same financial year. Some people for job purpose live in a rented accommodation themselves, while their self owned home is rented out. In such a scenario both HRA benefits and house loan tax deduction benefits can be availed, but the rental income received is taxable.
Multiple Housing Loans and Tax Rebate:
In case you have taken multiple housing loans for two different properties, you are allowed to avail tax rebate for both, but however that maximum deduction available for the principal and interest portion is fixed at Rs. 1, 00,000 and Rs.1,50,000 lakhs respectively. Any amount payable beyond this is not subject to tax rebate.
Home Loan benefits for Under Construction Property:
For any under construction property acquired through a home loan, the total interest paid on the principal amount during the construction period can be claimed for tax benefits. The principal portion repaid before the completion of construction however is excluded for deductions under 80C of the Income Tax Act 1961.
However, tax benefits are not available for top up home loans or loan against land purchase.
