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Buying a house is one of the top most priority for modern professionals and it is bought for living as well as investment reasons. But do you know that it also offers tax benefits which you should be aware of. Tax exemption on home loans means you can save a considerable amount of money on taxes if you have taken a home loan.
Tax provisions relating to home loans are as follows:
Interest paid on home loan
As per the provisions of Income Tax Act 1961, a deduction of up to Rs 150,000 can be claimed as tax exemption on housing loan. This deduction is claimed towards the total interest that we pay on the home loan towards purchase or construction of house property while computing the income from house property.
The interest payable before you acquire home or start the construction work would be deductible in five equal annual instalments commencing from the year in which the house has been acquired or constructed.
In case of self- occupied property, housing loan tax benefit is allowed only for one such self – occupied property. The interest towards home loan taken for purchase, construction, repairs, renewal or reconstruction of house property is eligible for deduction under section 24(b).
Principal Repayment of Housing loan
An individual can avail deduction on the principal loan repayment u/s 80 C (Max Limit Rs. 1 lakh) subject to fulfilment of prescribed conditions.
Let us consider an example:
Your taxable income is Rs 5,50,000. Principal Repayment for the same year: Rs 1,20,000 and interest payable is Rs 1,70,000.
Total deduction allowed is Rs 2,50,000 (Rs. 1,50,000 towards interest paid on housing loan and Rs.100,000 on principal repayment)
Total Taxable income is Rs 300,000 (Rs 550,000 – Rs 250,000)
Joint Home loans
Tax exemptions on housing loans will be available only to the person on whose name the property is registered irrespective of the fact who pays for the loan. In case the property is jointly held then the exemption can be availed in proportion to the EMI paid.
For example, if a couple has taken a housing loan whose details are as follows:
Loan Amount: 20 lakh
Loan Tenure: 20 Years
Interest rate: 11%
EMI: 20,644
Amount paid per annum: 2, 47,725 (2,18,559 towards interest and 29,167 towards principal)
Where in Husband pays 70% of EMI and Wife pays 30% of EMI then only then the amount of exemption available is as follows:
Interest payment: Since husband pays 70% of EMI he is allowed exemption on the 70% of the interest paid per annum i.e. (218,559*70% is 152991 limited to 150,000) and wife is allowed exemption on 30% of the interest amount paid i.e. (218,559*30%) 65,567.
Principal Repayment: Similar rule applies with the principal repayment, husband can avail exemption up to 70% of the principal amount repaid in a year (i.e. 29,167*70%) 20,417 while wife can avail exemption of up to 30% of principal amount repaid in a year i.e. (29,167*30%) 8,750.
How to claim tax exemption Under construction house ?
Most of the people whose house is under construction are lost as how to claim the exemption on the interest paid on housing loan which is under construction. Well, you can avail the tax exemption only when the construction is completed. In this case the Pre- Emi is paid while the house is under construction. So, you cannot use the Pre-Emi as the Tax deduction source. Once the construction is completed, the total Pre-Emi interest paid can be availed as exemption in five equal instalments in the subsequent years
For example, if you have paid Rs 100,000 as the pre-EMI, then Rs 20,000 will be shown in the next five years as tax deduction. Note that pre-EMI is only the interest paid during the period. If you have paid any principal amount, that is not eligible for the tax deduction
Tax provisions relating to home loans are as follows:
Interest paid on home loan
As per the provisions of Income Tax Act 1961, a deduction of up to Rs 150,000 can be claimed as tax exemption on housing loan. This deduction is claimed towards the total interest that we pay on the home loan towards purchase or construction of house property while computing the income from house property.
The interest payable before you acquire home or start the construction work would be deductible in five equal annual instalments commencing from the year in which the house has been acquired or constructed.
In case of self- occupied property, housing loan tax benefit is allowed only for one such self – occupied property. The interest towards home loan taken for purchase, construction, repairs, renewal or reconstruction of house property is eligible for deduction under section 24(b).
Principal Repayment of Housing loan
An individual can avail deduction on the principal loan repayment u/s 80 C (Max Limit Rs. 1 lakh) subject to fulfilment of prescribed conditions.
Let us consider an example:
Your taxable income is Rs 5,50,000. Principal Repayment for the same year: Rs 1,20,000 and interest payable is Rs 1,70,000.
Total deduction allowed is Rs 2,50,000 (Rs. 1,50,000 towards interest paid on housing loan and Rs.100,000 on principal repayment)
Total Taxable income is Rs 300,000 (Rs 550,000 – Rs 250,000)
Joint Home loans
Tax exemptions on housing loans will be available only to the person on whose name the property is registered irrespective of the fact who pays for the loan. In case the property is jointly held then the exemption can be availed in proportion to the EMI paid.
For example, if a couple has taken a housing loan whose details are as follows:
Loan Amount: 20 lakh
Loan Tenure: 20 Years
Interest rate: 11%
EMI: 20,644
Amount paid per annum: 2, 47,725 (2,18,559 towards interest and 29,167 towards principal)
Where in Husband pays 70% of EMI and Wife pays 30% of EMI then only then the amount of exemption available is as follows:
Interest payment: Since husband pays 70% of EMI he is allowed exemption on the 70% of the interest paid per annum i.e. (218,559*70% is 152991 limited to 150,000) and wife is allowed exemption on 30% of the interest amount paid i.e. (218,559*30%) 65,567.
Principal Repayment: Similar rule applies with the principal repayment, husband can avail exemption up to 70% of the principal amount repaid in a year (i.e. 29,167*70%) 20,417 while wife can avail exemption of up to 30% of principal amount repaid in a year i.e. (29,167*30%) 8,750.
How to claim tax exemption Under construction house ?
Most of the people whose house is under construction are lost as how to claim the exemption on the interest paid on housing loan which is under construction. Well, you can avail the tax exemption only when the construction is completed. In this case the Pre- Emi is paid while the house is under construction. So, you cannot use the Pre-Emi as the Tax deduction source. Once the construction is completed, the total Pre-Emi interest paid can be availed as exemption in five equal instalments in the subsequent years
For example, if you have paid Rs 100,000 as the pre-EMI, then Rs 20,000 will be shown in the next five years as tax deduction. Note that pre-EMI is only the interest paid during the period. If you have paid any principal amount, that is not eligible for the tax deduction
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