Home loan: Know these tax benefit sections in IT Act

f you fulfill the bank's criteria, your home loan process moves towards the next step. The real difficulty arises when you fall short of certain eligibility.

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It would not be wrong to say that everyone of us dream of having own house, however, lack of requisite money leaves us with no option but to opt for bank loan.

Getting a home loan from bank is stated to be easy now, but it involves certain criteria like showing your monthly income, your capability to repay debt and your current assets to avail it.

If you fulfill the bank's criteria, your home loan process moves towards the next step. The real difficulty arises when you fall short of the eligibility.

Many banks are currently providing home loan interest rates in the range of 8.30% to 12% for various categories.

Repaying the home loans always comes with a great responsibilities, because if you fail to pay your dues on time, you will enter into negative Credit Score by your lender and it will impact your further debts.

The government, however, has provided tax benefits under three sections--Section 80C, Section 24 and Section 80EE--of the Income Tax Act to ease the worry related to financing your dream house.

Prior to understanding these sections, one needs to remember two major factors of home loan including principal amount and interest component.

Under IT Act, the repayment of your home loan principal amount and the repayment of interest on your home loan fall under separate sections.

Let’s understand how does the above mentioned sections help you ease your burden in home loans.

Section 80C

If your talk about deductions in IT Act, this one will be the most common section.

This one comes during time when you declare things like premiums for life and health insurance, investments in mutual funds, investments in pension schemes and fixed deposits.

Investment made under 80C would help you in tax exemption up to Rs 1.5 lakh.

Interestingly, this section not just provides tax benefit in investments but also includes payments that may be made towards expenses like education fee and home loans.

While paying for home loan EMIs, you can claim tax benefits under this section on the principal amount.

Also, expenses like stamp duty and registration of the property during the purchase of a house are eligible for benefits under section 80C.

Section 24

While section 80C was relatd to home loan principal amount, section 24 allows you to claim exemptions on the interest you pay on home loans.

According to BankBazaar report, there are two types of deductions under Section 24 of the Income Tax Act.

1-Standard deduction: This is an exemption allowed to every taxpayer where a sum equal to 30% of the net annual value does not come under the tax limit. This is not applicable if you are occupying the only house you own.

2-Interest on loan: If you have taken a home loan for purchase, construction or renovation of the house, whatever interest you pay on the principal amount of the loan is exempted from tax payment. The sub-clauses in this category are:

If the loan has been taken for a self-occupied property, you can claim exemptions of up to Rs 2 lakh.
If you took a loan for purchase or construction (not renovation) of a property before actually buying or completing its construction, you can still claim the interest. You can seek deductions on the interest paid before the construction or purchase is completed, in 5 equal instalments, from the year in which the house is bought or the construction is completed.
If the loan is taken for renovation or reconstruction of a house, you cannot claim tax exemption until the renovation is completed.

For availing these deductions, you will have to compute the interest amount paid to the bank or financial institution (from where loan was taken), separate from the principal repayment.

The report says, “It does not matter whether you have actually paid the amount to the financier – you can get exemption for the complete annual interest amount.”

Section 80EE

In case you are first home buyers, this section will help you in claiming deductions on home loan interest payments.

Existing provisions of section 80EE provides a deduction of up to Rs 1 lakh in respect of interest paid on loan by an individual for acquisition of a residential house property.

Additional deduction of Rs 50,000 is also provided on loan taken for residential house property from any financial institution.

Deduction under the proposed section is over and above the limit of Rs 2,00,000 provided for a self-occupied property under section 24 of the Act.

However, it is subject to certain conditions, as per BankBazaar report.

The value of the property for which the loan has been taken should be less than Rs 50,00,000.
The loan amount should be less than Rs 35,00,000.
The loan should have been sanctioned between 1st April 2016 and 31st March 2017.
The loan should have been sanctioned by a financial institution or housing finance company.
As of the date of the sanction of the loan, you should not own any other residential property.
You can benefit from this deduction for the entire repayment period of the loan.

Make sure you remember to always have a statement from the lender clearly showing the amount that is payable and has been paid towards the principal and interest, in order to claim tax benefit in the above mentioned sections.

After these deductions are completed, then will be taxed as per the tax slab that you fall under.

If you are scared to opt for home loan or a first time buyer or already have home loan, you should remember these tax benefits as they would ease down your burden in repayment and tax rates.

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