Tax Benefits On Home Loans

Many people have an acceptable risk to return ratio which guides their investments. However, there are a number of difficulties which one faces when trying to determine which investments to select. Some of the basic concerns which the average investor feels are whether the investment will be tax efficient and also return will be positive compared to loss in purchasing power.

Many people do not realise the tax saving capacities of home loans. When it comes to getting home most young professionals and others do not think twice on buying a new home. The security and comforts afforded by having one’s own home are substantial.

Recently:

  • In the last budget the amount of tax benefit which can be availed from Home loans was enhanced in a twofold manner. The amount available as deduction for interest on home loans was 2 lakhs from 1.5 lakh rupees.
  • Further, on principle component of the home loan the benefit has been increased from 1 lakh to 1.5 lakhs with the increase in the maximum benefit limit under section 80C.


Tax Benefits:

  • The deduction for interest is available under section 24 for property occupied by self. For other than self occupied property, the tax payer can claim deduction of the entire interest and is not restricted to 2 lakhs rupees. However, if the reason for lack of self occupancy is business, profession or employment at another place, limit will be Rs. 2 lakhs.
  • The deduction for principle component is under chapter VI – Section 80C.


Notes:

  • It is essential to keep in mind that interest on home loan under section 24 is allowable on accrual or payable basis. Section 80C allows benefits only on payment basis.
  • Interest benefit limit under section 24 is available as a deduction as a deduction from Income from house property. The benefit limit of Rs. 2 Lakhs comes down to Rs.30,000 in case the construction for self occupied house property is not completed within 3 years from the financial year end in which the home loan was taken.
  • Interest paid or principle amount repaid is available as benefit from the year the house is completed. However, if interest expense was incurred for home before the year of completion of construction, the same can be claimed in aggregate over 5 years from the year of completion of construction.
  • The benefits claimed get null if the property is sold within 5 years from the financial year end of the year of possession. The entire amount allowed as deduction will get added back to the income in the year of sale.

 

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