A Home Buyer in India Enjoys Income Tax Benefits on:

  1. Home Loan EMI Payments
  2. Stamp Duty Charges
  3. Processing Fee and Service Charges

Let’s understand the amount of money that you can save...

Income Tax Saving on Home Loan for F.Y. 2017-18 | F.Y. 2018-19| F.Y. 2016-17:

 

Tax benefits are one of the important consideration when planning to take a housing loan.Tax benefits on housing loan are provided under section 24, section 80C and section 80EE of Income Tax Act, 1961.

For a better understanding of these benefits, let us divide the discussion into two parts on the basis of components of EMI.

  • Payment of Principal amount
  • Payment of Interest amount

Before we understand these in detail, let first understand if you are eligible for claiming these tax benefits.


So, Who can claim tax benefit on home loan?

For claiming the tax benefit on home loan you must be fulfill one basic requirement common with all the income tax sections.

You must be the bearer of both the titles, i.e., owner of house property and the borrower of loan for the property. Only ownership alone or being a borrower of funds alone cannot reap you these benefits. Though, you may be a co-owner or a co-borrower.

So, if you are thinking of buying a home in your wife’s name and paying the EMI from your income, Then, unfortunately you will not get any tax benefit:(

Overall only an individual or member of hindu undivided family can claim tax benefits on home loan. No company, partnership firm or body corporates is allowed the benefit of home loan interest & principal deduction.


Income Tax Deduction for Home Loan Repayment of Principal Amount u/s 80C :

You can avail deduction under section 80C of the Income Tax Act for the principal amount repaid during the financial year.The maximum deduction allowed under this section is of Rs. 1,50,000. So, if you have paid more than Rs.1,50,000 as the principal component, you will not be able to get any tax benefit for the remaining amount.

Conditions for claiming home loan deduction under 80C are:

  • Deduction for repayment of principal can be claimed only after the completion of construction of property. For instance : The construction completion certificate was issued by the competent authority in March 2017, then the principal amount repaid during the financial year 2016-17 can be claimed entirely in the income tax return of that year to the extent of Rs. 1,50,000. However the principal repaid if any prior to the FY 2016-17 cannot be claimed in the return filed for the FY 2016-17.
  • The deduction shall be allowed only for the repayment of loan borrowed for the purposes of purchase or construction of house property. Hence, principal repayment of loan borrowed for the purposes of alteration, renovation or repair doesn't qualify for claiming deduction under the section 80C.
  • Loan should be taken from financial institution only as defined by the income tax Act, 1961. Normally, Repayment of loans borrowed from individuals doesn't qualify for deduction under 80C. However, the interest paid on sum borrowed from individuals shall be allowed as deduction under section 24 of the Act (discussed below).
  • Deduction is allowed only when the principal amount is actually paid. Thus, if your EMI for March’17 is paid in the month of April’17. You will not be able to claim the principal amount paid in the month of March’17 in the income tax return filed for the F.Y. 2016-17.March month EMI can be claimed in next year return.
  • After claiming the deduction,the property should not be sold before the end of 5 years of possession. Otherwise,the aggregate amount of deduction taken till date, shall added back in the income of year of sale of house.

Amount of Income Tax Deduction for Payment of Housing Loan Interest u/s 24:

Houses are not build in a day, it is a long process involving purchase of land, landscaping, construction of basic structure then furnishing,interiors etc. Hence, money is required & invested at every stage even before your house is ready to move in.

The good news is that the tax benefit of interest paid on home loan,for both the pre-construction and post construction period can be claimed by you! Deduction for the interest paid on home loan can be claimed under Section 24 of The Income Tax Act 1961.

The interest is divided in two categories - Pre-construction/Acquisition & Post Construction/Acquisition

  • A. Pre-Construction Period Interest : It start from the date of borrowing and ends on the 31st March just before the date of completion or the date of repayment of loan, whichever happens first. Interest on pre-construction period is calculated using a simple formula : = Home Loan taken for the purchase or construction of house *Rate of Interest* Pre-acquisition period/pre-construction period It is allowed in five equal installment from the year in which the construction is completed.
    Condition for claiming the Pre-Construction/Acquisition Interest: Income tax Interest Deduction on pre-construction period is allowed only in case of loan taken for the purchase or construction of your house.: No Tax Deduction allowed for Interest paid before Completion,if housing loan is taken for purpose of Repair/ Renewal/ Reconstruction.
  • B. Post-Construction Period Interest : Interest on loan after completion of construction is called the post construction interest.

Case study to understand how much interest on housing loan will be exempt from income tax u/s 24:

If you take a home loan of Rs.50,000 @15 percent per annum for the construction of your home on 1st June 2011 and construction of house is complete on 1st Jan 2017.Then,the total interest tax exemption= Pre-Construction Interest + Post-Construction Interest

Calculation of Pre-Construction Interest :

The pre-construction period will be from 1st June 2011 till 31st March 2016(31st March just before the date of completion).

Interest for pre-construction period will be = (50,000*15%*10/12)+(50,000*15%*4) = Rs.36,250

Amount of installment deductible in five equal installments = 36,250/5= Rs.7,250 per annum

Calculation of Post-Construction Interest :

The post-construction period will be from 1st April 2016 till the time of repayment of the home loan (even, when the property is completed on 1st Jan 2017, interest of the entire financial year will be treated as the post construction interest)

Amount of interest per year post construction will be = 50,000*15%*1= Rs.7,500

Yearly Home Loan Interest Deduction u/s 24
F.Y. 2016-17 F.Y. 2017-18 F.Y. 2018-19 F.Y. 2019-20 F.Y. 2021-22 F.Y. 2022-23
Pre-construction Interest 7,250 7,250 7,250 7,250 7,250 -
Post-Construction Interest 7,500 7,500 7,500 7,500 7,500 7,500
Total 14,750 14,750 14,750 14,750 14,750 7,500

Now, the next question that come to one’s mind is


What is the limit/amount of income tax deduction in a year for the interest on home loan?

There are certain limits specified by the Income Tax Department. These limits varies according to the nature of use(own use or let-out) for which house would be used for which the loan is being borrowed.

Self-Occupied House Amount of Tax Deduction on Interest : When you take a home loan for own residence then the total limit for tax deduction including the pre-construction period and post-construction period interest that can be claimed in a year are:

Amount of Tax Deduction in a Year When Can You Claim It?
Up to Rs. 2,00,000

- Purpose of loan- The sum must be borrowed for purchase or construction of new house property.

- From FY 2016-17 onwards, the purchase or construction of property must be completed within 5 years from the end of the financial year in which the sum is borrowed. (Prior to this amendment, the time limit for completion was 3 years.)

Example: The loan is borrowed in Dec, 2016. Hence the construction must be completed by March, 2022.

Up to Rs. 30,000

- Purpose of loan- The sum is borrowed for repair, renovation or reconstruction.

Rented-Out House(Including deemed let-out property) Amount of Tax Deduction on Interest :

If you buy a house for the purpose of renting it has a different tax limit for the interest deduction. Moreover, when you own more than one house ,than one property of your choice is considered as self-occupied and others as deemed to be rented out(let- out), by the Income tax department.

Tax Benefit :

In both the cases, the entire interest on the home loan is allowed as deduction. The interest here includes the post-construction period interest for the year plus one-fifth of the pre-construction period claimed in the current year.

Conditions for claiming the tax benefit on interest on home loan under section 24 are:

  • The deduction of interest u/s 24 is available on due basis, unlike the deduction for repayment of principal which is available on actual payment basis. Thus, even when you have not paid any EMI's during the year,you can still claim tax benefit for interest deduction.
  • You need to have interest certificate specifying the amount of Interest on Loans.
  • Interest paid for prior period shall not be available for deduction in case of repair, renewal and Reconstruction.
  • Above limits are applicable only if construction is complete within 5 years

In Addition, to the interest tax deduction benefit under section 24, income tax department provides additional interest deduction under section 80EE specially for the first time home buyers.

Income tax deduction for first time home buyer in India under section 80EE :-

An individual is given extra tax benefit amounting to Rs.50,000/- for interest paid on the home loan.The benefit of this deduction is given over and above interest deduction taken under section 24.

Condition for availing the tax benefit under section 80EE of income tax act 1961 are:

  • At the time of taking loan, you must be buying your first house.
  • Amount of loan shall not exceed Rs.35 lakhs
  • Value of property shall not exceed Rs.50 lakhs
  • Loan must be taken from Financial Institution and housing finance company
  • Loan must be sanctioned between 01.04.2016 to 31.03.2017

Income Tax Benefits on Home Loans

Particulars Quantum of Deduction (Rs.)
Self Occupied Property Non-Self Occupied Property
Section 24 2,00,000 No Limit [set off limit is Rs. 2 Lakh]
Section 80C 1,50,000 1,50,000
Section 80EE 50,000 50,000

In Addition, to the tax deduction on the principal and interest component, you can further reduce the cost of your house by saving tax.

Smart tax saving tips, to maximise your tax benefit on purchase of your home-

  • Stamp duty and registration charges: You can take benefit of the stamp duty and registration charges paid at the time of purchase of home under section 80C upto Rs.1,50,000. Unlike tax deduction of principal repayment of home loan which can be claimed only after the house is complete, these expenses can be claimed anytime in the year of payment irrespective of the fact whether any loan has been acquired or deduction.
  • Processing fee and service charges: Processing fees levied on any loan taken is part of service charges, and any kind of charges taken by bank to render its services are tax deductible and form part of loan amount. For borrowing a loan, generally processing fees is charged by the bank. Processing fees or any kind of charges taken by bank to render its services are tax deductible.This can also be claimed as an interest expense under section 24 of the income tax act. However, no amount for the the amount paid to anyone (mostly your CA’s) for arranging the loan as commission or brokerage is not allowed as deduction.
  • Being Joint holders of loan: This can be a good tax planning in case your spouse being co applicant of loan is an earning member. In case of earning members applying for loan in joint name both can individually leverage benefit upto Rs.2 lakh u/s 24 and 1.5 lakh u/s 80C, also they get enhanced loan limit based on aggregate earnings. Income saved is almost the income earned. So increase your savings to increase your income.

How to claim Income Tax Benefits on Home Loans?

For claiming the tax benefits on your housing loan all you need to do is just follow simple process:

  • Calculate the amount of income tax deduction.
  • Submit your home loan interest certificate and EMI statement to your employer at the time of income tax proof submission with your Form 12BB.

If you forget to submit these proofs to your employer, you can still claim the tax benefit at the time of filing your income tax return.If you are a self-employed, you are not required to submit these documents to anyone. In both the situations,it is advised to keep the record of the proof of the deduction claimed for future reference incase the IT department raises any question.


Conclusion: Income Tax benefits on housing loan are provided under section 24, section 80C and section 80EE of Income Tax Act, 1961.

The amount paid as Repayment of Principal Amount of Home Loan and Amount paid as Stamp Duty & Registration Fee is also allowed as tax deduction under Section 80C even if the you have not taken Loan.

Tax Benefit payment of home loan Interest along with Processing fees or any kind of charges taken by bank to render its services are tax deductible is allowed as a deduction under Section 24 of the Income Tax Act.

Incase, you have property jointly then each joint-owner can separately claim these deductions.

If you are living in a rented house and are taking Tax Benefit of HRA, even then you can claim Tax benefit on home loan under Section 24, Section 80EE & Section 80C.

For claiming the above tax deductions, you would be required to furnish the statement provided by the lender clearly indicating the amount payable and paid towards Interest and Principal.

After claiming the above deductions of Tax Benefit on Home Loan, your balance Income would be taxed as per the Income Tax Slab Rates.

Income Tax Saving Benefits on Purchase of House

Principal amount repaid Interest amount repaid Interest deduction for first time buyers Stamp Duty
Section applicable Section 80C Section 24 Section 80EE Section 80C
Basis of Tax Deduction Paid Basis Accrual Basis Accrual Basis Paid Basis
Maximum deduction limit 1,50,000 2,00,000 50,000 1,50,000
Conditions Property should not be sold until expiry of 5 years from purchase Loan taken for either purchase or construction + property constructed within 5 years Amount of loan <= 35 lakh + Value of property <= 50 lakh + Loan should be taken during 01.04.2016-31.03.2017 Stamp Duty should actually be paid

Homeownership can be an expensive affair, but the tax benefits of owning a home can help you save thousands and lakhs of rupees of taxes also. So, go on increase your tax benefits by planning your taxes before buying your dream home:)


Planning to buy a house? Let us help you save taxes legally!

- Buying a house is one of the biggest tax planning opportunity in a person’s life, this requires careful analysis of one’s financial and family situations.

- Planning your taxes at the time of buying your first house has long-term impacts on your finances.

- Tax2win has expertise in personal taxation.Our experts would help you plan your taxes, to help you get the maximum tax benefits.

Frequently Asked Questions

Q- What are some of the home loan grants for first time home buyers?

For the first time buyer, there is an additional deduction on interest on home loan under section 80EE of INR 50000, deduction on payment of stamp duty under section 80C along with principal repayment and interest deduction under section 24.


Q- Can we claim tax benefit on an under construction property?

Deduction under section 24 for interest on home loan for under construction property can be claimed for five installments from the completion of construction.


Q- Is having a home loan for a tax benefit beneficial or is being without a home loan an advantage?

Having a home is a matter of pride but it comes with heavy cost.It is always better to save some if possible. By purchasing property on loan, there are various deductions available to the assessee on home loan repayment, interest on home loan in addition to deduction of stamp duty and processing fees.It is advisable to have a home loan for more tax benefits.


Q- Is home loan in india considered under tax savings?

Yes, home loan comes with many tax saving deductions such as a deduction under section 24 for interest payments, deduction under 80C for repayment of loan and additional benefit to first time buyers of INR 50000.


Q- Will I be able to get income tax benefits on a mortgage loan in India?

No, benefits of tax saving is only available on home and education loan and not on mortgage loan. However,under business income, interest can be claimed as expenses but beyond that there is no income tax benefits on mortgage loan.


Q- Do homeowners need to pay annual property taxes in India?

Yes. Homeowners are required to pay property taxes but they can claim it as an expense while calculating income under house property.


Q- What is Sec. 24 in a housing loan for tax savings?

Section 24 of the Income Tax Act, 1961 allows deduction on the interest of home loan.The interest is categorized:

  • Pre-construction period where interest can be allowed as a deduction for a period of five installments from the date of completion of construction.
  • Post Construction interest is the interest after completion of home loan interest.

Q- What are the existing income tax benefits on home loans?

Benefits on home loans are:

  • Interest deduction on home loan under section 24.
  • Deduction for principal repayment of loan under section 80C upto INR 1.5 lakh
  • Additional deduction to first timer buyers of INR 50000 under section 80EE.

Q- Am I eligible for tax benefit on down payment paid from savings while purchasing home?

Yes, you are eligible for tax benefits as deduction is allowed when principal repayment is done , it does not matter from which account payment has been made.

CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.