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Avail Tax benefits on your Top-up Home Loan
Financial products are primarily availed by customers to fulfil their urgent monetary requirements. Secondly, these products mainly loans are used to claim tax benefits. Like home loan, Top-up home loan also helps in claiming tax benefits. The tax benefits on Top-up loan include a deduction of up to Rs. 1.5 lakhs on the principal repayment under section 80C. However, if the property is sold within 5 years, the tax benefit will be overturned.
The second benefit is a deduction up to Rs 2 lakhs on the interest paid under section 24 of the Income Tax Act in a financial year. Maximum claim limit Rs. 2 lakhs only if your property is completed within 5 years and is self-occupied. If this criteria is not fulfilled the limit drops drastically to Rs. 30,000.
Further we have discussed the difference between the tax sections with categories for your reference and better understanding.
| Categories | Section 24 | Section 80C |
| Tax Deduction allowed for | Interest | Principal |
| Type of Property | Any Real Estate Property | Only Residential House Property |
| Basis of Tax Deduction | Accrual basis | Paid basis |
| Quantum of Tax Deduction allowed | Self-Occupied Property: Rs. 2 lakhs. Non Self Occupied Property: No Limit | Rs. 1.5 lakhs |
| Purpose of Loan | Purchase / Construction/ Repair/ Renewal / Reconstruction of a Residential House Property | Purchase / Construction of a new House Property |
| Eligibility for claiming Tax Deduction | Purchase / Construction should be completed within 5 years | Nil |
| Restriction on Sale of Property | Nil | Tax Deduction claimed would be reversed if Property sold within 5 years |
Let’s get some insight on the tax benefits that can be availed from these Income Tax Act sections in detail.
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Section 80C
The maximum deduction allowed is capped at Rs. 1.5 lakhs. This section provides tax benefits related to the principal amount. Income tax paid by an individual in order to repay his/her principal loan amount is allowed as a deduction under this section of 80C under Income Tax Act. Tax deduction is not permissible, if the amount exceeds the capped amount which is Rs. 1.5 lakhs. Under this section the deduction allowed are amount paid for fixed deposit, saving schemes for senior citizens, Public Provident Fund (PPF), national saving certificate, etc. The tax deduction is allowed only if the construction has been fully completed. For under construction properties, this section does not allow to avail tax benefits. For the completed properties, the completion certificate needs to be submitted.
Transfer of property is not possible, if the assess has gained tax benefits in form of deductions. This condition comes as per the section 80(5) under Income Tax Act. These properties cannot get transferred for a minimum period of 5 years from the end of the year of the possession of such property is obtained by the assess.
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Section 24
Under this section, tax payer can avail the tax benefit on the interest amount paid on home loan. Borrower can avail a maximum deduction to an amount of Rs. 2 lakhs. However, no maximum limit applies in case such property has not been purchase by self-occupation. Property should be completely constructed within a period of 5 years only; otherwise the quantum of such deduction shall be reduced from Rs. 2 lakhs to mere Rs. 30,000.
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Section 80EE
First time home buyers are benefited under Section 80EE, as the benefits of income tax is that deduction of tax is on the interest amount paid on home loan. An additional amount of Rs. 50,000 is allowed for the first time home loan borrowers who make interest payment on home loan. This leverage of additional Rs 50,000 shall be over and above the deduction of Rs. 2 lakhs which is defined under Section 24 and Rs. 1.5 Lakh under section 80C of Income Tax Act, respectively.
Below are some of the criteria to be followed before availed benefit under Section 80EE:
- Additional deduction is applicable on value of property which is less than Rs. 50 lakhs and for which an amount of loan is taken for a value of less than Rs. 35 lakhs.
- Borrowers can derive benefit under this provision till the time the repayment of loan continues.
- The amount of such loan should have been sanctioned to an individual between 1 April 2016 and 31 March 2017.
Home loan in return requires lot of money to be repaid to the lender and if you save some money as a tax deduction, it further lowers your burden. For home loan borrowers, Income Tax Act with its various sections has given leverage to get tax benefits while availing home loan of their choice. Following the provided information, customers can make the best use of the tax benefits on their home loan, as well as enjoy the related advantages of their existing home loan. At paisabazaar.com you can check, compare and apply from various home loan deals that suits your needs and requirements and further can avail tax benefits on the same.
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