Tax benefits of home loan: Now buying house shall even be more beneficial

• I am planning to buy a house by taking home loan; whether I should buy vacant plot/ land/ under construction property or readymade flat to avail maximum tax benefit?
• What is the quantum of the tax benefit that shall be available to me in each of the cases?

One of the major issues faced by us is high tax burden that we have to bear every year. And to reduce such burden, all of us look for some exemptions that can be availed so that we have to pay fewer taxes. Availing a house loan brings one such opportunity to reduce the tax burden.

If you also have raised a home loan recently for buying a house and are curious to know the that are attached with payment of interest and principal amount of loan, this blog shall help you resolve your curiosity. Let us understand what are the benefits that you can avail from the loan on your property. According to provisions of income tax act, a person availing home loan can claim exemption of tax both on interest payment as well as principal repayment in his ITR.

Yes, if you are paying interest & principal amount towards a loan, you can utilize such amount to reduce your tax liability.

To gain more understanding of the provisions, let's divide the discussion of tax benefits in two parts:

• Tax benefits on payment of interest;
• Tax benefits on repayment of principal amount;

A house property for which loan has been taken may either be a self occupied property or a rented property. That is to say, the person who has taken the loan shall either himself occupy the property or shall let it out on rent. So let's analyze both the above mentioned points and understand as to how we shall be benefitted in each of the cases:

1. Tax benefits on payment of interest; If you are paying interest on home loan, you shall be entitled to deduction as pointed below.
   • Tax benefit in case you have self-occupied property; Maximum interest of Rs. 2, 00, 000 is allowable in case loan is taken for purchase or construction of self occupied property. Such amount shall reduce to Rs. 30, 000 in case loan is taken for repair/ reconstruction of property.
     Important to note: – Construction or purchase must be completed within 3 years from end of F.Y. in which loan is taken.
     
   • Tax benefits in case you have let out the property on rent; The entire interest amount that you pay towards the loan is available as deduction in case of rented property. Such amount shall be deducted from the rental income for the year.
     Following computation to be done to calculate income from house property:
     

     Computation	Self Occupied	Rented
     Rental income (Net Assessable Value in case of self-occupied)	NIL	XXX
     (- ) Property Taxes	NIL	XXX
     Net Value	NIL	XXX
     (-) Standard Deduction @ 30% { Net value *30% }	NIL	XXX
     (-) interest on Home Loan	XXX	XXX
     Income From House Property	XXX	XXX

   In both cases, due to interest payment, there shall be a loss in Income from house property head which can be adjusted against the income of other heads. In case such loss is not adjusted fully, it can be carried forward for next 8 years and can be adjusted in subsequent years
2. Tax benefits on repayment of principal amount;
   In both the cases whether there is self-occupied property or rented property, Principal amount re-paid is eligible to be claimed under sec 80 of the income tax act. A maximum of Rs. 1.5 lakh can be claimed under sec. 80c (Max. limit of claiming all deductions under 80c is 1.5 lakh.