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Housing and Real Estate::

Home Loan: Tax Benefit

By: Rohit,      Update:19 Mar 2013

Home loan borrowers have been given some Income Tax benefit by the government. If you have make up your mind to avail home loan you will get certain benefit in income tax as provided in the Income Tax Act 1961.

Whenever you will avail a home loan it is repayable in Equated Monthly Installments (EMIs). EMIs comprise of two components; (i) interest (ii) repayment of the principal.

 Income tax rebate is available in both.

In “Income Tax Act” of India there are two sections which will permit you to get a deduction if you have taken a home loan. Such deduction is not allowed in case home loans taken from “private sources” (Friend, Family, etc). The two sections are here under.

(1). Sec 24(b) of the Income Tax Act, 1961

(2). Sec 80(c) of the Income Tax Act, 1961


(1). Section 24 of the Income Tax Act

Section 24 of the Income Tax Act 1961 is deal with interest component of the home loan.  According to this section, deduction of the interest repaid up to an amount of Rs 1.50 lakh or the actual amount paid, whichever is lower, is allowed. However, the cap on the maximum limit is set at Rs 1.50 lakh.

If  you pay the EMIs for more than one house than  you are entitled to claim the interest amount for all the  houses up to a maximum limit of  Rs 1,50,000. It is not necessary that you should reside in the house to make a claim of this tax benefit.


(2). Section 80C of the Income Tax Act

 Sec 80(c) of the Income Tax Act, 1961 is deal with repayment of the principal component of the home loan. The part of the EMI paid in repayment of the principal sum is permissible for deduction from taxable income. The maximum permissible limit for deduction is set at Rs 1.00 lakh per annum, irrespective of the tax slab in which the borrower comes. To avail this rebate it is necessary that the borrower occupies the property himself or herself. This exemption is only valid if you are residing in the property constructed/ occupied by borrowed loan. Therefore, you cannot avail rebate of income tax if you are not occupying it yourself. In case the property is under construction this exemption is not available.

In case the borrower lives in a city ‘A’. At “A’ borrower’s lives in own house and he has another property at ‘B’. Borrower has taken home loan for both and paying EMIs for both the properties as well. One can make a claim of principal repayment for both houses. This is also applicable even  if borrower hired out the property to tenants  at ‘B’.

There is no limit on the number of properties/houses toobut maximum exemption is available Rs 1,00,000/-

In case you are living in your own house in Chennai, and, you also have another property in Bangalore. You are paying EMIs for both the properties as well. You can make a claim of principal repayment for both houses. This holds good even if you have hired out the property to tenants in Bangalore.

Pre-EMI Interest

In case your house is under construction, banks make partial payment to builder at different stages of construction. As the EMI will start after construction/possession or after certain period even if incomplete in such case, banks may ask you for pre-EMI interest. According to Income Tax Act no benefit is claimable on the year in which you pay out the pre-EMI interest. Benefits only can be claimed once the construction ends, and you get the possession of the house.

Suppose pre-EMI interests is paid inn three consecutive financial years and in fourth year you got the possession of house . Then , you are eligible for  one-fifth or 20% of the full amount by you in last three year.

 Proposal in Budget FY 13-14

Finance Minister in his Budget speech proposed that a person taking a loan for his first home from a bank or a housing finance corporation (HFC) up to Rs 25 lakh from April 1, 2013 to March 31, 2014, will be entitled to an additional deduction of interest of Rs 1 lakh.

Further the additional deduction will be over and above Rs 1.50 lakh deduction allowed for self-occupied properties under Section 24 of the Income-Tax Act. If the limit is not exhausted, then the balance may be claimed in assessment year (AY) 2015-16.

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