Guide to home buying related tax benefits

What are the tax benefits I can claim?

You can avail of several tax deductions if you are opting for a home loan. Here’s a quick summary of the tax savings.

Principal deductions – you can avail a tax deduction of upto Rs. 1.5 lakh per year for principal amount repaid on the loan under section 80(c) of the Income Tax Act. This deduction can only be availed after the construction of the property is complete and will be reversed in case you sell your property within 5 years of getting possession.

Stamp duty and registration charges – Tax deduction under section 80(c) can also be claimed for stamp duty and registration fees as well within the overall limit of Rs 1.5 lakh applied to principal repayment. This benefit can be availed regardless of whether you take a home loan or not but it can only be availed in the year these expenses are incurred.

Interest deductions Under Section 24 – you can avail a tax deduction of up to Rs. 2 lakh per year on the interest amount paid on the loan under section 24 for self-occupied property. Interest benefit can only be claimed on completed property. The interest paid during the under-construction period can be claimed as a deduction in 5 equal installments subject to the cap of maximum deduction under the section. For property that is rented out, the entire interest amount can be claimed as a deduction.

Under Section 80 EEA – For affordable housing, an additional Rs. 1.5 lakh interest deduction is available for individuals who are first time home buyers under Section 80EEA subject to the following conditions.

  • For homes under 45 lakhs
  • Homes with area less than 60sqm in metros
  • The loan must be sanctioned till 31st March 2021 and no other property must be owned by the individual at the time of sanction

Additional deductions – an additional interest deduction of Rs. 50,000 is available to first time home-owners under Section 80EE subject to the following conditions.

  • Value of the house should be Rs 50 lakhs or less
  • Loan taken for the house must be Rs 35 lakhs or less
  • The loan must be sanctioned between 01.04.2016 to 31.03.2017 and as on the date of sanction, no other house must be owned by the individual

My property is still under construction. Can I claim tax benefits?

You cannot claim tax deductions until the construction is completed. After completion, you can claim a deduction of interest paid during the period prior to the year of taking possession. This can be claimed in five equal installments from the year in which construction is completed (capped to the maximum permissible interest deduction for the year under Section 24).

Can the co-owner of the apartment also claim tax benefits?

Yes, separate deductions can be claimed provided the co-owner has a different source of income. Both owners can claim deduction under Section 80C up to Rs.1.50 lakh. Both co-owners can also claim deductions up to Rs.2 lakh on the interest paid on the loan. If the house is rented out, there is no restriction on the interest deduction and both can individually claim deductions based on the ratio of possession on the property.

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