Owning a home is a dream for many, and home loans make this dream achievable. However, apart from the basic understanding of how these loans function, it's essential to recognise the financial advantages they provide. One major benefit comes in the form of the 'Interest On Housing Loan Section' in the Income Tax Act. Let's dive deep and understand how you can save big through these benefits.
What is the Interest on Housing Loan Section in the Income Tax Act?
The Income Tax Act of India has specific sections designed to promote homeownership by providing fiscal advantages to those who avail home loans. Two of the primary sections dealing with these advantages are Section 24 and Section 80EE.
Section 24: This section, popularly known as the "Interest On Housing Loan Section," provides a deduction on the interest amount paid on housing loans. The provision under Section 24(b) is available for both self-occupied properties and let-out properties. For a self-occupied house, the maximum deduction available on interest on the home loan is Rs. 2 lakh per annum. However, in the case of a let-out property, there is no upper limit, and the entire interest amount can be claimed as a deduction against the rental income.
Section 80EE: This section provides additional relief to first-time homeowners. Over and above the deductions available under Section 24, Section 80EE allows first-time home buyers to claim an additional deduction on interest repayments. However, there are certain conditions to be met. The value of the house should not exceed Rs. 50 lakh, and the loan amount should be Rs. 35 lakh or less. Also, the loan should have been sanctioned within a particular period specified by the Act. The maximum amount that can be claimed under this section is Rs. 50,000 per annum.
Who is Eligible to Claim Interest on Housing Loan Deduction Under Section 24?
Section 24 of the Income Tax Act provides tax relief to homeowners by allowing them to claim a deduction on the interest component of their housing loan. This provision serves dual purposes: promoting homeownership and offering fiscal relief to those servicing housing loans. However, like all tax benefits, there are specific eligibility criteria in place to ensure the right beneficiaries avail the benefits.
Type of Property: The deduction under Section 24 can be claimed for any residential property. It could be a house, an apartment or any property that's been constructed for residential purposes. The property can be self-occupied or let out.
Ownership of Property: The individual claiming the deduction must either be the property's owner or a co-owner. In cases of jointly owned properties with joint home loans, all co-owners can claim the deduction, but each of them can only claim their share of the interest paid.
Completion of Construction: The interest deduction can be claimed starting the financial year in which the construction of the property is completed. If the property is purchased ready-made, the date of loan sanction is the point of reference. However, it's important to note that if the construction or purchase isn't completed within 5 years from the end of the financial year in which the loan was taken, the deduction limit reduces to Rs. 30,000 from the standard Rs. 2 lakh.
Pre-construction Interest: Interest paid on the home loan during the period before the completion of construction can also be claimed, but not immediately. It can be claimed in five equal installments starting from the year in which the construction is completed.
Possession Status: For self-occupied properties, the maximum deduction that can be claimed is Rs. 2 lakh. However, for a property that's been let out or deemed to be let out, there's no upper limit on the amount of interest that can be claimed as a deduction. The entire interest paid can be offset against the rental income.
Can I Claim Interest on a Loan Taken for Any Type of Residential Property?
The type of residential property can influence the extent of the deduction you can claim. Let’s delve deeper into this matter.
Self-occupied Property: If you're residing in the property for which you've taken the loan, it's termed as a self-occupied property. For such properties, under Section 24(b) of the Income Tax Act, you can claim a deduction of up to Rs. 2 lakh per annum on the interest paid for the home loan.
Let-out Property: If you've rented out the property, it's termed as a let-out property. In this scenario, there's no upper limit on the amount of interest you can claim as a deduction. The entire interest paid on the loan can be offset against the rental income received. However, post deduction, if there's a loss, it can be adjusted against other heads of income, subject to conditions.
Under Construction Property: If the property is still under construction, the interest paid during this period doesn't qualify for immediate tax benefits. However, once construction is completed, the interest paid during the pre-construction phase can be claimed in five equal installments over 5 years, starting from the year the construction is completed.
Can I Claim Interest on Housing Loan Seduction for a Loan Taken From Friends or Relatives?
You can claim a interest on housing loan for a loan taken from friends or relatives, under Section 24(b) of the Income Tax Act. However, there are a few points to consider:
Proof of Loan and Interest: Proper documentation is essential. Ensure that you have a formal loan agreement detailing the loan amount, tenure, rate of interest and repayment terms. This will serve as proof of the loan transaction.
Payment Record: Maintain a clear record of interest payments made, preferably through banking channels like bank transfers, to validate your claims.
Recipient's Tax Liability: The interest you pay to friends or relatives is taxable income for them. They should include this income in their tax returns.
Conclusion
Navigating the complexities of housing loan interest deductions can seem daunting, but with the right information, homeowners can maximise their tax benefits.
As you consider homeownership, it's worth exploring Tata Capital Home Loan offerings, designed with the homeowner's best interests in mind. Remember, a home is not just an asset but also an opportunity to save big! Always stay informed and leverage these provisions to make your path to homeownership smoother.
15 September 2023
6 mins read
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