Income tax provides certain benefits to the assessees who have taken home loan for buying the property.
Where the property is given on rent in that case, Standard Deduction (Sec 24(a)) of 30% of net annual value is deductible irrespective of any expenditure incurred by the tax payer.
Where the property is self-occupied i.e. property is used by the assesse for his own residential purpose in that cases following two benefits are available
Interest on borrowed capital (Sec 24(b))
Interest on borrowed capital is allowable as deduction if capital is borrowed for the purpose of purchase, construction (Maximum limit is Rs.200000/-) repair, renewal or reconstruction (limit is Rs.30000/- and not Rs.200000/-).
Interest on borrowed capital is deductible on “accrual basis”. It can be claimed on yearly basis even if the interest is not actually paid during the year.
Deduction u/s 80C
Repayment of Housing Loan (only principal component paid during the financial year) taken from government, bank, co-operative bank, LIC. National housing bank, assesses employer where such employer is public company /public sector company / universities / cooperative societies.
The aggregate amount of deduction u/s 80C cannot exceed the limit of Rs.150000/-
Deduction is available on actual payment basis for example, if insurance premium becomes due on March 20, 2020 and actually paid on April, 5 2020, such premium is qualified for deduction u/s 80C for the previous year 2020-21.
Stamp duty, registration fee and other expenses for the purpose of transfer of such house property to the assesse.
Deduction on interest paid during the pre-construction period
The preconstruction period is the period during which the house is under construction. It starts from the day when loans first disbursement is availed and ends when the construction is completed / possession is taken. So from the year when the construction is completed assesse can claim deduction of interest paid post construction period and 1/5th of cumulative preconstruction period interest (starting from the financial year in which the house is completed / possession is taken). Please keep in mind that as mentioned above the maximum limit for deduction is Rs.2 lacs only.
All the benefits are summarised in the following table:
|
Component |
Section |
Maximum Deduction |
Condition |
|
Interest |
24(b) |
Rs.2 lakh |
The loan must be taken for purchase / construction of house. |
|
Principal |
80(c) |
Rs.1.5 lakh |
The overall limit for deduction under sec 80 (c) capped at Rs.1.5 lakh |
|
Interest |
80EE |
Rs.0.5 lakh |
The amount of loan and property value should not exceed Rs.35 lakh and Rs.50 lakh respectively. |
|
Interest |
80EEA |
Rs.1.5 lakh |
The stamp value of property should not exceed Rs.45 lakhs. The taxpayer should not claim deduction u/s 80 EE. |
Further to this for those who want in depth understanding these sections please click here