In India, purchasing a property is considered to be a very fruitful investment that is very auspicious and promising for future returns. In India, one plans to buy a property as an inherent decision in his investment portfolio. In fact, people tend to opt for buying more than one properties as well, simply for the sake of having an investment in their portfolio that they can utilize on a future date to get incremental returns. From this point of view, purchasing a home is a very proper investment decision. However, since the prices of house property are generally soaring quite high on the scale of investment, people often need to take a decision to take a home loan for the purpose of purchasing a house property. What many people do not realize is that one can derive a number of Home loan tax benefits in this procedure that will help them save huge bucks in the form of tax that would otherwise flow out in an annual financial year.
What to keep in mind when making a decision to buy a home?
Many people go about making a decision to purchase a home, without taking into consideration the factor of Home loan tax benefit, when it is a very relevant criterion that should be considered before purchasing a house. There is a concept of repayment of principal amount and payment of interest amount on the home loan, on which Home loan tax benefit can be derived effectively. Different sections of the income tax act govern the operation of such home loan and its repayment.
Which sections of the income tax act provide relief against Home loan tax benefit?
There are several ways in which a person can derive the Home loan tax benefit when purchasing a house and making loan repayment on the amount of loan obtained on his name. Read the following to get to know about such deductions in a better way:
Section 80 C
Section 80 C of the income tax act provides for a benefit of tax on home loan relating to the principal amount. Under this section of the income tax act, the amount which is paid by an individual or an HUF, in relation to repayment of principal amount of a loan, is allowed as a deduction under this section of the income tax act. However, since the maximum deduction that is allowed under this section is capped at INR 1, 50,000, no individual and HUF can obtain a deduction exceeding such amount in any case. Included among the deduction allowed under this section are amounts paid for PPF, Tax savings fixed deposits, national savings certificate, senior citizens saving scheme and much more. Such deduction can be availed on a payment basis, not regarding whether the amount is paid in current year, relates to this year or any other year. However, for the purpose of Home loan tax benefit, such deduction is allowed only after the construction is complete in whole. Moreover, the completion certificate should be awarded for the purpose of obtaining such deduction. Such deduction shall not be allowed for a period under which the property was under construction.
The point to be noted under such deduction is that as per section 80(5) of the income tax act, the assessee shall not transfer the property, for which deduction under section 80 is being obtained. Such property shall not be transferred for a minimum period of five years from the end of the year in which the possession of such building is obtained by the assessee. Otherwise, if such property is sold within a time period of 5 years, all such deductions which were allowed as Home loan tax benefit in the erstwhile years shall be deemed to be the income of the assessee at the year in which he makes sale of such property.
Section 24
As per section 24, an assessee can obtain income tax benefit on the interest amount paid on home loan. Under this section, the income of an assessee under the head ‘gains from house property’, shall be decreased by the quantum of interest that he pays on the home loan where such amount of borrowing has been procured by him for the purpose of purchasing, constructing, repairing, renewal, of any resident house property. One can obtain a maximum deduction under this section to an amount of INR 2, 00,000. However, no maximum limit applies in case such property has not been purchase by self-occupation. A property should be purchased or constructed within a period of five years only, otherwise the quantum of such deduction shall be reduced from INR 2, 00,000 to only INR 30,000.
| Particulars | 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. 2,00,000. Non Self Occupied Property: No Limit | Rs. 1,50,000 |
| 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 |
Section 80 EE
Under this section, one can avail benefit of income tax on interest on home loan for those people who are buying a home for the first time. As per the provisions of this section, an additional deduction of INR 50,000 shall be allowed to people who make payment of interest on home loan. This incentive shall be separate and in excess of the deduction of INR 2, 00,000 allowed under section 24 and the deduction of INR 1, 50,000 allowed under section 80 C. There are some limitations to the applicability of such deduction however, which are as follows:
- Such deduction is applicable on value of property which is less than INR 50, 00,000 and for which, an amount of loan is taken for a value of less than INR 35, 00,000.
- The amount of such loan should have been sanctioned to an individual between 1 April 2016 and 31 March 2017.
- One can derive benefit under this provision till the time the repayment of loan continues.
Should one take the benefit of such Home loan tax benefit?
Needless to say, one should take the benefit of various sections that are applicable and provided under the Income Tax Act, 1961, for the benefit of individuals and HUF’s. Availing such benefits, would effectively reduce the amount of tax that would be paid to the authorities that would be reflected easily by a fall in the revenue on which such tax is charged. This is a direct and authentic way to plan taxes for an individual and HUF and there is nothing to worry about, as far as these provisions are concerned, as they have been expressly provided by the government itself through its income tax act and budget, every year.
No assessing officer can point a finger at an individual and HUF for availing these tax benefits, when purchasing a house property, as they are directly linked to the valid provision contained in the Income Tax Act. All individuals can take the benefit of such provision, without any trouble.
The Government of India has come a long way in estimating the ways in which it would charge its voters with taxes and how it would provide some form of relief to them and these sections are just one of such relief that one can avail as part of Home loan tax benefit.