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Many of us take a home loan to buy the dream
home. However, we hardly know the tax benefits associated with Home loan. In
this post, I will throw light on Home loan tax benefits. I will also cover 10
less known facts which are not known to a majority of people.
Home Loan Tax Benefits
Home
Loan EMI payment has two components (1) Principal (2) Interest (Section 24).
You can avail tax benefit on both these components.
·
Principal – You can claim tax deduction on the Home loan principal
paid by you. The limit for this deduction is 1.5 Lac (Section 80C). You can get
details about principal amount paid by you from your lender.
·
Interest – You can also avail tax benefit on the interest
component of the home loan. The total deduction allowed on interest component
is up to 2 Lac. The condition of availing this tax benefit is owner should live
in the house for which home loan is taken or house should be vacant.
Total
Tax Benefit = 1.5 Lac Principal (80 C) + 2 Lac Interest (Section 24) = 3.5 Lac
Now
let’s take a look at 10 less known facts about home loan tax benefit section
24.
10 Less Known facts about Home
Loan Tax Benefits
First time home buyers can
claim additional tax deduction of Rs 50,000 on Home Loan Interest
In
budget 2016 new section 80EE is introduced for the first time home buyers. As
per the new section 80EE, first time home buyers can claim an additional tax
deduction of Rs 50,000 on home loan interest. This deduction is over and above
tax deduction of 2 Lac under section 24 and 1.5 Lac under section 80C.
So, maximum tax benefit shall be
4 Lac per year. This new benefit is applicable under following conditions.
·
You are first time home owner.
·
No other house is owned by you.
·
The value of the loan is less than 35 lacs and property value is
less than 50 lacs.
·
The loan should be sanction between 1st April 2016 and 31st March
2017.
This
benefit shall be extended till the time repayment of home loan continues.
Deduction
is allowed to the borrower and co-borrower
Home loan deduction on principal
and interest is extended to the borrow
and co-borrower both. This means if you have taken a home loan on your and your
wife’s name you and your wife both can claim these tax deductions. So,
effectively you and your wife both can enjoy tax benefit applicable on a home
loan.
No
benefit on principal payment during construction on property
As
per income tax law, you can not avail any tax benefit on principal payment
during the construction of the property. You are eligible for this benefit only
after the project is completed and property possession is given to you.
Preconstruction period interest is also deductible in 5 equal
proportion in 5 years.
You
can claim home loan benefit only on the possession of the property. Any
preconstruction payment towards principal cannot be claimed. However, you can
claim preconstruction period interest payment once you received possession of
the property. The tax deduction benefit on such interest is available equally
over a period of 5 years starting from the year of possession.
Tax benefit on Home Protection Insurance
premium payment
Many
banks offer home protection insurance scheme. If you opt to take home
protection scheme, an insurance premium paid towards this scheme can be claimed
for tax deduction under section 80C. For home protection scheme sum assured and
premium changes with the time.
Principal and repayment tax benefit shall be reversed if you to
sell the property before 5 years.
You
cannot sell the property before 5 years. If you sell the property before 5
years, all principal paid by you in last five years shall be reversed and added
to your income. In addition to this, you may need to pay capital gain tax.
Loan from relative and friends
is also eligible for tax benefits
You
can take home loan from your friends and relatives and avail tax benefits.
However, you will not get any tax benefit on the principal amount.
Let
me explain, if you take home loan from your friend you can claim a tax
deduction on interest paid to your friend (Under section 24). The following
condition should be fulfilled in order to avail this tax benefits.
·
You need to submit proof that you have paid interest to your
friend. This may be in the form of a certificate.
·
Your friend needs to show this interest income and he/she need to
pay income tax on this income.
You
can not avail tax benefit on principal payment under such case.
Benefit
of section 80 C, section 24 and HRA
You
can not avail the benefit of HRA if you are living in your own house and
getting tax benefit towards section 80 c and section 24. However, if you are
living in rented house despite owning your own house you can avail the benefit
of section 80 C, section 24 and HRA also.
Buying multiple homes using
home loan
You
can purchase multiple home and avail tax benefits. The benefit under section 80
C for the principal payment shall be capped at 1.5 Lacs for all loans. The
benefit under section 24 for the interest payment for the self-occupied property
shall be 2 Lacs. For the house which is given on rent, there is no limit
on interest payment claim.
Stamp
Duty, Registration fee, Processing Fee and Tax Deduction
In
addition to principal and interest component other expenses can also be claimed
for the tax benefit. These expenses include stamp duty, registration fee
expenses etc. All these expenses can be claimed as tax benefit under section
80C. Any processing fees for getting home loan sanction can also be claimed for
tax benefit.
