Answer By law4u team
Under the Income Tax Act of India, taxpayers can claim deductions on the interest paid on home loans. This provides significant tax relief and encourages individuals to invest in their own property. These deductions are available under various sections of the Act, most notably under Section 24(b) for home loan interest.
Deductions Available on Home Loan Interest:
Section 24(b) – Interest on Home Loan (for Self-Occupied Property or Rented Property):
Self-Occupied Property:
Under Section 24(b), a taxpayer can claim a deduction of up to ₹2,00,000 per year on the interest paid on a home loan for a property that is self-occupied.
- The property should be occupied by the taxpayer or his family for residential purposes.
- This deduction is available regardless of whether the taxpayer is repaying the principal amount of the loan.
Rented Property:
If the property is rented out, the taxpayer can claim the entire interest paid as a deduction under Section 24(b). There is no upper limit on the interest that can be claimed for rental properties.
Home Loan for Construction or Purchase:
The property for which the loan is taken must be constructed or purchased within 5 years from the end of the financial year in which the loan was taken.
If the construction or purchase is delayed beyond 5 years, the interest deduction under Section 24(b) will still be allowed, but the total deduction on interest will be limited to ₹30,000.
Interest on Loan for Repair or Renovation:
If the home loan is taken for repairing, renewing, or reconstructing a property, the interest paid on this loan is also eligible for tax deduction under Section 24(b).
This interest is also capped at ₹2,00,000 per year for self-occupied properties.
Additional Tax Benefits Related to Home Loans:
Principal Repayment Under Section 80C:
Apart from the interest deduction, the principal repayment made on the home loan is eligible for deduction under Section 80C.
You can claim a deduction of up to ₹1,50,000 per year for the repayment of the principal amount. This limit is combined with other eligible 80C deductions, such as EPF, PPF, and tax-saving fixed deposits.
Stamp Duty and Registration Charges:
The stamp duty and registration charges paid for purchasing the property are also eligible for a deduction under Section 80C, within the limit of ₹1,50,000.
Tax Benefits on Home Loan for Joint Owners:
Joint Ownership:
If the property is jointly owned by two or more individuals, each co-owner can claim a separate deduction on the interest paid and principal repayment, based on their respective share in the property.
- For interest paid, each co-owner can claim a deduction of up to ₹2,00,000 (for self-occupied property) or the full interest amount (for rented property) under Section 24(b).
- For principal repayment, each co-owner can claim a deduction of up to ₹1,50,000 under Section 80C.
Example of Home Loan Interest Deductions:
Scenario 1: Self-Occupied Property
- Loan Amount: ₹30,00,000
- Interest Paid: ₹2,50,000
- Principal Repayment: ₹1,00,000
- Taxpayer’s Share in the Loan: 100%
Deductions:
- Interest on Home Loan (Section 24(b)): ₹2,00,000 (maximum limit)
- Principal Repayment (Section 80C): ₹1,00,000 (within the ₹1,50,000 limit)
Total Deductions = ₹2,00,000 (interest) + ₹1,00,000 (principal) = ₹3,00,000
Scenario 2: Rented Property
- Loan Amount: ₹40,00,000
- Interest Paid: ₹3,00,000
- Principal Repayment: ₹1,20,000
- Taxpayer’s Share in the Loan: 100%
Deductions:
- Interest on Home Loan (Section 24(b)): ₹3,00,000 (no limit for rented property)
- Principal Repayment (Section 80C): ₹1,20,000 (within ₹1,50,000 limit)
Total Deductions = ₹3,00,000 (interest) + ₹1,20,000 (principal) = ₹4,20,000
Conclusion:
The Income Tax Act offers significant tax benefits for home loan borrowers, including deductions on the interest paid under Section 24(b) and deductions for principal repayment under Section 80C. For self-occupied properties, the interest deduction is capped at ₹2,00,000 per year, while there is no limit for rented properties. Additionally, stamp duty and registration charges can be claimed under Section 80C, further enhancing the tax relief available to home loan borrowers.
These deductions help reduce the overall tax liability, making home loans a more attractive financial tool for homeowners.
