New Delhi: Purchasing a flat/house by taking a home loan not only makes homebuying affordable but also reduces the tax liability of the home buyer. Other than saving income tax on interest payment to the bank, homebuyers also get tax deduction on principal repayment. Here are the tax benefits a homebuyer can avail against his/her home loan.
1) Deduction up to Rs 2 lakh on interest payment during pre and post-construction period
The interest paid on housing loan can be claimed as a deduction under section 24b. For self-occupied property, the deduction is available up to Rs 2 lakh but there is no limit for the let-out house property. If the computation results in loss from the two-house properties, then maximum Rs 2 lakh can be set-off against other heads of income and balance can be carried forward for 8 assessment years. And, this loss can be used to set-off income from house property only.
Also, the interest paid during the construction phase can be claimed for deduction in five equal instalments under Section 24b. But this interest will come under the overall limit of Rs 2 lakh available under Section 24b.
2) Deduction up to Rs 1.5 lakh on home loan principal repayment
The amount paid towards home loan principal repayment every year can be claimed for tax deduction under Section 80C. The maximum amount that can be claimed is Rs 1.5 lakh. However, there are certain conditions to avail this benefit. First, construction of property must be completed within 5 years from the end of the financial year in which the loan was taken. Second, if the property is transferred or sold within 5 years, tax deductions claimed so far would be reversed, i.e. added back to your income in the year of sale, and then taxed according to your tax slab.
3. Additional interest deduction of up to Rs 1.5 lakh under affordable housing for home loans sanctioned between 1st April 2019 and 31st March 2020
The Budget 2019 provided a major impetus to affordable housing by announcing an additional deduction of Rs 1.5 lakh on interest payment made on home loans availed between 1st April 2019 and 31st March 2020 under Section 80EEA. In order to qualify for tax deduction under section 80EEA, the value of housing property has to be less than Rs 45 lakh. Worth mentioning here is that only first-time homebuyers can avail this benefit.
4. Deduction for stamp duty and registration charges
Other than principal repayment, the amount paid for stamp duty and registration charges on property purchase can be claimed for tax deduction within the overall limit of Rs 1,5 lakh under Section 80C. This deduction can only be claimed in the year in which these expenses have incurred.
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