There are several tax benefits that you can get on your home loan. Let’s take the tax deduction on home loan interest as an example. Under Section 24 (B), you can get a tax deduction up to Rs. 2 lakh on the annual interest on the home loan for building/buying/repairing/reconstructing a property. The pre-payment charges and processing fees are also taken as interest can be claimed accordingly. For being eligible to get this deduction, you can borrow from a bank or financial institution or even from people like relatives and friends as long as you prove that the money has been borrowed for this purpose.
The deduction amount depends on whether the property is self-occupied or let out. In case you are using the property as your own residence or have reserved it for self-occupation, the deduction is maximum Rs. 2 lakh annually. However, in case it is let out, the entire interest repaid can be claimed against rental income. In case you occupy and own more than one home, you have to choose one of these as self-occupied and the other will be automatically perceived as let out. In case of the latter, market rent has to be offered for taxation purposes. Full interest can be claimed in case of the latter on the money which has been borrowed.
The limit of loss under income from house property to be set off against other sources of income is Rs. 2 lakh annually. However, the loss which cannot be adjusted against other income for a year can be taken forward and claimed against income from house property for the next 8 years. In case of properties under construction, EMI payments usually commence after the project finishes. The tax benefit cannot be claimed until construction is finished and you have got the possession. The benefit can be claimed for the entire year in which you have taken possession. For the time in which the property is being constructed, you will have to pay interest on loan disbursements made in that period till possession.
This pre-EMI interest can be claimed in 5 equal instalments starting from the year in which construction is finally completed. This deduction of pre-EMI interest comes within the limit of Rs. 2 lakh. In case you sell the property prior to completing 5 years post taking possession, the claims will be lost for the years remaining. In case the property is sold prior to taking possession, interest paid on your home loan can be claimed as the cost while capital gains are computed.
You also get a deduction up to Rs. 50, 000 annually under Section 80 EE in case your home is priced within Rs. 50 lakh and if the loan has been sanctioned between the 1st of April 2016 and 31st of March 2017. Also, the home loan amount should not surpass Rs. 35 lakh. You have to be a first-time homebuyer and the deduction can be claimed for interest repaid in the construction period as well. You can also claim deductions up to Rs. 1.5 lakh for repaying the principal amount under Section 80C. However, this section contains payments made towards EPF, PPF, NSC, life insurance premium, ELSS and other avenues.
The deduction can be claimed only in case of home loans which have been taken from banks and HFCs. This deduction can also be claimed from the year in which home construction has been completed and possession has been obtained. You should continue owning this home on which the loan has been taken for at least 5 years from the end of the year in which the home loan has been taken. In case the property is transferred within 5 years, the deduction that has been claimed in the previous years will be reversed and taken as income for the year in which the home has been sold.