Buying your first house on a loan comes with multiple tax benefits. These deductions not only reduce your tax outgo but also help in managing your cash flows better.
Here are all the deductions you can claim when you take a home loan:
1) Deduction on interest: If you are paying EMIs for a home loan you took to buy a house, the interest component in the EMI can be claimed as the deduction. You must be both an owner and a co-borrower (in the loan) to claim tax benefits. This deduction can be claimed to start the year in which the construction of the house is completed. Suppose the construction of your house was completed on August 30, 2015, you can claim the deduction for interest for the entire 12 months in the financial year 2015-16. So every year a maximum of Rs. 2 lakh can be claimed for a house that you use for your own residence. If your house is rented, the entire interest for the year can be claimed as the deduction.
The interest payments for the year shall result in a loss under the head 'income from house property'. This loss can be adjusted against in the same year against other heads of income in your income tax return including salary. Therefore, it reduces your total taxable income and the tax you pay thereon. Assuming your interest outgo for the financial year 2015-16 for a house you use for your own residence is Rs. 1.8 lakh, income under the head salary is Rs. 8.5 lakh, income from other sources (interest income) is Rs. 52,000 and your loss from house property are Rs. 1.8 lakh.
2) Deduction on principal repayment: The component of your EMI which goes towards principal is eligible to be claimed under Section 80C of the Income Tax Act. You can sum up the outgo for the year towards principal and claim it. A maximum of Rs. 1.5 lakh can be claimed as a deduction under Section 80C.
3) Deduction of stamp duty and registration charges: Besides the deduction allowed on principal repayment, payment made towards stamp duty and registration charges are also allowed to be claimed under Section 80C. However, these can only be claimed in the year in which these were paid.
4) Deduction on pre-construction interest: While deduction for interest can be claimed to start the financial year in which the construction is completed, you can also start claiming pre-construction interest from the same year. You need to add up the entire pre-construction interest and claim it in five equal installments. The total deduction, however, should not exceed Rs. 2 lakh when the house is being used by you for your own residence.
5) Deduction under Section 80EE: This section has been inserted to provide the tax benefit to first time home owners where a value of the house is Rs. 40 lakh or less and the amount of loan taken is Rs. 25 lakh or less. To be able to claim this deduction, the loan should have been sanctioned between April 1, 2013, to March 31, 2014, & on-wards. A maximum deduction of Rs. 1.5 lakh is available under this section and can be claimed in financial years 2016-17. The total deduction allowed under Section 80EE cannot exceed Rs. 1.5 lakh. This section lapses in the current financial year 2016-17. So, if you meet all the conditions laid out in Section 80EE, do remember to claim the deduction while filing your tax returns for the financial year 2016-17.
Here are all the deductions you can claim when you take a home loan:
1) Deduction on interest: If you are paying EMIs for a home loan you took to buy a house, the interest component in the EMI can be claimed as the deduction. You must be both an owner and a co-borrower (in the loan) to claim tax benefits. This deduction can be claimed to start the year in which the construction of the house is completed. Suppose the construction of your house was completed on August 30, 2015, you can claim the deduction for interest for the entire 12 months in the financial year 2015-16. So every year a maximum of Rs. 2 lakh can be claimed for a house that you use for your own residence. If your house is rented, the entire interest for the year can be claimed as the deduction.
The interest payments for the year shall result in a loss under the head 'income from house property'. This loss can be adjusted against in the same year against other heads of income in your income tax return including salary. Therefore, it reduces your total taxable income and the tax you pay thereon. Assuming your interest outgo for the financial year 2015-16 for a house you use for your own residence is Rs. 1.8 lakh, income under the head salary is Rs. 8.5 lakh, income from other sources (interest income) is Rs. 52,000 and your loss from house property are Rs. 1.8 lakh.
2) Deduction on principal repayment: The component of your EMI which goes towards principal is eligible to be claimed under Section 80C of the Income Tax Act. You can sum up the outgo for the year towards principal and claim it. A maximum of Rs. 1.5 lakh can be claimed as a deduction under Section 80C.
3) Deduction of stamp duty and registration charges: Besides the deduction allowed on principal repayment, payment made towards stamp duty and registration charges are also allowed to be claimed under Section 80C. However, these can only be claimed in the year in which these were paid.
4) Deduction on pre-construction interest: While deduction for interest can be claimed to start the financial year in which the construction is completed, you can also start claiming pre-construction interest from the same year. You need to add up the entire pre-construction interest and claim it in five equal installments. The total deduction, however, should not exceed Rs. 2 lakh when the house is being used by you for your own residence.
5) Deduction under Section 80EE: This section has been inserted to provide the tax benefit to first time home owners where a value of the house is Rs. 40 lakh or less and the amount of loan taken is Rs. 25 lakh or less. To be able to claim this deduction, the loan should have been sanctioned between April 1, 2013, to March 31, 2014, & on-wards. A maximum deduction of Rs. 1.5 lakh is available under this section and can be claimed in financial years 2016-17. The total deduction allowed under Section 80EE cannot exceed Rs. 1.5 lakh. This section lapses in the current financial year 2016-17. So, if you meet all the conditions laid out in Section 80EE, do remember to claim the deduction while filing your tax returns for the financial year 2016-17.
