How to get maximum Home Loan Tax Benefit in India for 2022
Section 80C allows for tax deductions on amounts paid by individuals as principal amount of home loan. Section 80C permits a maximum tax deduction in the amount of Rs. 1,50,000.
This tax deduction represents the sum of all the deductions allowed under Section 80C. It includes amounts invested in PPF account, Tax Saving Fixed deposits, Equity Oriented Mutual fund, National Savings Certificate, Senior Citizens Saving Scheme, etc.
No matter the year the payment was made, this tax deduction under Section 80C can be taken on a monthly basis. Tax deductions under Section 80C are also available for amounts paid in Stamp Duty or Registration Fee, even if the Assessee does not have a Loan.
This section covers principal home loan repayments but tax benefits are only available to home loans that have been constructed and awarded a completion certificate. For the years when the property was still under construction, no deduction would be allowed for principal repayment.
Additionally, if you plan to purchase an under-construction property because it is less expensive than a fully finished property, you will also need to know that GST is applicable to under-construction Property. For properties that have been completed, however, GST is not levied.
House Property must not be sold within five years
Section80C(5) further states that the assessee may transfer the house property upon which he claims tax deduction under Section80C within 5 years of the end of the Financial Year during which the possession was acquired by him. In such cases, no tax benefit under Section80C shall be allowed. The Assessee shall pay tax on any income from the Assessee for which he has claimed tax deductions in previous years.
Tax benefit for Home Loan (Interest amount)
The tax benefit for home loan interest payments can be claimed as a deduction under section 24 and under the newly added section 80EEA (Amended to Budget 2020).
Section 24: Income Tax Benefit on Interest on Loan for Purchase/Construction of Real Estate
Tax Benefit for Home Loans to Pay Interest is permitted under Section 24 Income Tax Act. Section 24 states that Income from House Property will be reduced by the Interest paid for Loan, if the loan was used to purchase, repair, renew or rebuild property.
A maximum limit of Rs. is allowed for the maximum tax deduction under Section 24, which applies to self-occupied property. 2 Lakhs (increased by Budget 2014 from 1.5 Lakhs, to Rs. 2 Lakhs).
Please Note: If the property has been occupied by an owner but not by himself due to his work, business or profession, he must live at the other place. Otherwise, Section 24 will allow Rs. tax deduction. 2 Lakhs.
Noting that Section 24 Interest on Loan is subject to tax deduction, it is possible to deduct this amount on a deductible basis. accrual. Section 24 allows you to claim deduction even if there has not been any payment during the year, as opposed to Section 80C that allows only deduction on payment basis.
Furthermore, the interest benefit for this case will be reduced from 2 Lakhs down to Rs 30 000 if the property cannot be acquired or constructed within five years after the end of the financial year during which the loan was taken. (The limit has been increased from 3 to 5 years starting in FY 2016-17).
Deduction for Non Self Occupied Property (Budget 2017 Update)
The interest paid on non-self-occupied property is subtracted from the Rent to determine the Income from House Property. There may be instances where the Rent earned is greater than the Interest paid. This will cause Loss from House Property. This loss is allowed to be offset by income from any other source.
The Finance Act 2017, dated February 1, 2017, has put restrictions on the maximum Loss under Head House Property that can be offset from other heads Income. A loss of Rs. The loss of a maximum of Rs. 2 Lakhs can be offset with income from other head. The amount that is not set off shall be carried forward for future years.
These new provisions, which were added to the Income Tax Act, have been beautifully explained in this link Income Tax Treatment for Loss from House property.
For Self-occupied Property, the maximum amount of interest that can be deducted is Rs. Non-self-occupied property is allowed to be deducted up to Rs. 2 Lakhs. The loss under the head property should not exceed Rs. 2 Lakhs (i.e. Rent Received- Std Deduction- Property Taxes- Interest Rapid should not exceed Rs. 2 Lakhs). For self-occupied property, the interest exceeding Rs. 2 Lakhs will be lost and cannot be claimed for a deduction. However, in the case of Non-Self-Occupied property, the Loss From House Property that is greater than Rs. 2 Lakhs can be carried forward to next year, and may be claimed in next year.
Income Tax Treatment of Pre-Construction Intent
Many times, the amount paid for the property is not yet completed. Some home buyers take out a loan to purchase properties and begin paying EMI to their bank.
Section 24 clearly states that tax deductions for the payment of interest shall not be permitted before construction is complete. In these cases,
- A loan taken to repair, renew or reconstruct a building: There is no tax deduction for interest paid before completion
- If the loan is used for purchase or construction: The interest that was paid before completion of construction shall be added and the total amount shall be allowed to be tax-deductible in five equal installments, beginning in the year the construction was completed.
For example: Mr. A purchased a New Delhi House in 2009 and borrowed Rs. 10,00,000 loaned by a Bank with Interest @ 10% Construction was completed in April 2011.
Section 24 of the Income Tax Act allows for tax deductions for interest only from financial year 2011-12. However, Interest on loans paid prior to completion of construction (i.e. Rs. 2,00,000. This amount would be allowed for tax deduction in the five following Financial years at 40,000 p.a. Starting in Financial Year 2011-12. (Simplified examples have been used for simplification.
Important Points:-
- Interest on an outstanding amount is not tax deductible (Shew-Kisan Bhatter v. CIT (1973), 89 ITR 6(SC)).
- This tax deduction is only available if the construction is finished within five years after the financialyear during which the capital was borrowed.
- A taxpayer can't claim any deductions for the commission paid to arrange the Loan
- If the taxpayer has no income from property other than that which is earned from it, but is still paying municipal taxes and interest on a home loan, then this would result in a loss under the head Income from House Property. This loss from Head Income from House Property may be offset by income from other heads during the same Financial year.
- If income from other sources cannot be used to offset the loss in the same year, the loss may be carried forward and applied to income arising from House Property over the next 8 years.
- The person who acquired the property or constructed it with the Borrowed Funds can claim tax benefits from interest on the home loan. It is not applicable to the Successor of Property.
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