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Tax Benefits on Home Loan - At a Glance

Income Tax Section Benefit in Rupees Tax Benefits Head
Section 80 C Rs 1,50,000 Principal
Section 24 Rs 2,00,000 Interest
Section 80 EE Rs 50,000 Interest

This limit is per person and not per property. If a husband & wife own the property jointly then each one of them will benefit to the tune of the above mentioned amount individually

Let us now look at each of the section in detail

1. Principal Component – Section 80 C – Rs 1.5 lakhs

a) Calculation: Total Principal component paid in 1 year, subject to a maximum of Rs 1.5 lakhs, is deducted from your TAXABLE INCOME

b) Basis of Tax Deduction: On Paid Basis

c) Income Tax Benefits can be claimed only after the completion of the project and not while it is under construction

d) Occupancy is a must: The only exception is when the city of employment and house are different

e) Tax Deduction claimed would be reversed if property sold within 5 years

2. Interest Component – Section 24 B – Rs 2 lakhs

a) Calculation: Total Interest component paid in 1 year, subject to a maximum of Rs 2 lakhs, is deducted from your TAXABLE INCOME

b) Basis of Tax Deduction: On Accrual Basis

c) Income Tax Benefits can be claimed only after the completion of the project. However, after the possession you can claim for the already paid interest component during the construction phase in 5 equal installments i.e. from Year 1 of possession till Year 5 of possession. This claim is over and above your regular claim for interest outgo after possession subject to a maximum of Rs 2 lakhs

d) Occupancy is not a must

e) Tax deduction claimed will not be reversed if the property is sold

3. Interest Component – Section 80EE – Rs 50,000

This deduction of Rs 50,000 under Section 80EE is over and above the Rs 2 lakhs allowed under section 24 B. First you need to exhaust the limit of Rs 2 lakhs under Section 24 and then claim the additional benefit under this section

The following are the applicable conditions

a) Applicable for only 1st time individual home buyers. If you are a company/HUF its not applicable

b) A loan must have been taken from a Bank/HFC to buy this 1st property of yours

c) This deduction would be allowed only if the value of the property purchased is less than Rs 50 Lakhs and the value of loan taken is less than Rs 35 Lakhs.

d) The loan should be sanctioned between 1st April 2016 and 31st March 2017.

e) The benefit of this deduction would be available till the time the repayment of the loan continues.

f) This Deduction would be available from Financial Year 2016-17 onwards.

Tax Benefits for Joint Ownership

Tax benefits on a joint home loan are available to all the joint owners

1) Ownership in the property is a must

2) All joint owners must be co-borrowers in the loan

3) Advisable to have an ownership agreement in place as a legal proof clearly defining the ratio of ownership

4) Benefits: Each owner can claim the permissible deductions separately for the same property

5) Calculations:If the ratio of ownership is 60%:40% in the ownership sharing agreement then the loan amount of 50 L will be split as 30 L and 20 L respectively and interest/principal applicable to the respective amounts will be taken into account for each individual taking the loan.