Owning a home is a dream all of us harbor. It is a huge investment which needs to be planned well. But the sky-high prices make it seem impossible to realize this dream. Therefore, most of us take help of home loans to fulfill this dream. But home loan is also one of the biggest liabilities we take up and want to get rid off as soon as possible. To make the burden seemingly less, the government has provided for certain tax deductions that you can take advantage of.
Tax Deductions Available on Home Loan
Deduction on interest payment
You can claim a deduction of Rs 2 lakh every year on home loan interest payment or the actual interest paid whichever is lower under Section 24B of the Income Tax Act.
Deduction on principal payment
You can claim a deduction of up to Rs 1.5 lakh as a part of principal repayment during the financial year under section 80C.
Tax deductions in case of joint home loan
In case of joint home loan, each co-borrower can claim a deduction of up to Rs 2 lakh for interest payment and Rs 1.5 lakh on principal payment. However, the co-applicant who is not a co-owner can’t claim these tax deductions. Also, a co-owner who is not a co-applicant can’t claim tax deductions.
Listed below are some scenarios and their tax treatments
Both husband and wife are co-borrowers but the EMI is paid by the husband alone.
Husband can claim a deduction of maximum of Rs 2 lakh for interest payment and Rs 1.5 lakh for principal payment. Wife cannot claim any tax deductions.
Both husband and wife contribute to the EMI and their share is in the ratio of 60:40.
Income tax deduction will be available in the same proportion in which the EMI is paid, that is 60:40.
I have two home loans. What will be the total amount of deduction?
For income tax purposes, you can treat one property as self occupied and take its annual value to be nil. You can get a deduction of Rs 2 lakh on interest payment under Section 24B and Rs 1.5 lakh deduction under Section 80C for principal payment.
All other properties will be considered let out even if they are vacant. A notional rent will be calculated for such properties and will be added to individual’s income. There is no maximum limit on the deduction on interest payment made in case of second house. However, there is no deduction is available on principal payment in case of a second house.
I haven’t received possession of the house as it is still under construction. Can I avail tax benefits?
You will be eligible for tax deductions only after you get the possession of the house. These deductions cannot be claimed for under construction properties. You can claim deduction on interest in five equal installments after you get the possession of the house.