Why owning a home is beneficial tax-wise?

Buying a property is a big decision & investment, for which every one needs the support of a home loan. If one wishes to buy a 1 BHK in Thane, he will have to shell out between 60 lakh – 1 crore. To pay up the entire amount is not everyone’s cup of tea, more so, not even who can afford wishes to do so. In such a case, a home loan, added to accompanying home loan tax benefits come to the rescue. Not only does it make the home buying process systematic, smooth & easy on the pocket, it also brings along with it some additional tax benefits.

Home Loan Tax Benefits

Joint home loan

Lighter on the pocket, a joint home loan allows you to share the EMIs with your family member, friend or any other co-borrower. In case you lighten your financial burden, even more, you can add more than two applicants to the same loan, this will also make the repayment of the loan easier.

The tax benefit on joint home loan for co-owner are:

  • Each joint owner and borrower can claim Rs.2 lakhs interest deduction
  • A joint owner can claim an 80C deduction on principal repayment
  • Each joint owner can split costs of registration and stamp duty and claim an 80C deduction
  • Source: Grihahakti

Deduction under section 80EE and 80EEA

In the year 2016 & 2017, to increase the sale of flats and to make it easy for people to buy homes, the Indian government introduced a deduction under section 80EE. Section 80EE allows a deduction of up to Rs 50,000 for interest paid by first-time homebuyers for a loan sanctioned from a financial institution between 1 April 2016 and 31 March 2017. The government has extended the benefit for the FY 2019-20 which can be claimed until the housing loan is repaid.

Speaking of Section 80EEA, a deduction for interest payments up to Rs 1, 50,000 is available, which is over and above the deduction of Rs 2 lakh for interest payments available under Section 24 of the Income Tax Act.

Cumulatively, taxpayers can claim a total deduction of Rs 3.5 lakh for interest on a home loan, if they meet the conditions of section 80EEA.

For availing this deduction there are some eligibility criteria & conditions one has to adhere to:

Eligibility criteria:

  • The deduction is available only to individuals. If you are a HUF, AOP, Partnership firm, company, or any other kind of taxpayer, you cannot claim any benefit under this section.
  • Similar to Section 80EE, to claim deduction under Section 80EEA, you should not own any other house property on the date of the sanction of a loan.

Conditions:

  • A housing loan must be taken from a financial institution or a housing finance company for buying a residential house property.
  • The stamp duty value of the house property should be Rs 45 lakhs or less.
  • The individual taxpayer should not be eligible to claim deduction under the existing Section 80EE.
  • The taxpayer should be a first-time homebuyer. The taxpayer should not own any residential house property as of the date of sanction of the loan.

Conditions concerning the carpet area of the house property. These conditions have been specified in the memorandum to the finance bill, but not mentioned in section 80EEA:

  • The carpet area of the house property should not exceed 60 square meters (645 sq. ft.) in metropolitan cities of Bengaluru, Chennai, Delhi National Capital Region (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (the whole of Mumbai Metropolitan Region)
  • The carpet area should not exceed 90 square meters (968 sq. ft.) in any other cities or towns.
  • Further, this definition will be effective for affordable real estate projects approved on or after 1 September 2019

Under Section 24, homeowners can claim a deduction for interest payments up to Rs 2 lakh on their home loan, if or not the owner or his family resides in the house property.

If the homeowner has rented out the property, the entire home loan interest is allowed as a deduction.

If one can satisfy the conditions of both Section 24 and Section 80EEA, benefits under both the sections can be claimed.

It is however advised to exhaust the deductible limit under Section 24 first, which is Rs 2 lakh. Then claim the additional benefits under Section 80EEA. Therefore, this deduction is in addition to the Rs 2 lakh limit allowed under Section 24.

Source: Cleartax-80eea, Cleartax80ee

Deduction for stamp duty and registration

In India, a homebuyer has to pay stamp duty between 4-10% and a registration charge at 1% of the property value. Deductions are claimed on stamp duty and registration charge paid on property purchase under Section 80C of the Income Tax Act, 1961. The overall deduction limit under Section 80C ─ which offers rebate against a wide range of investments, including PF, PPF, life insurance, home loan principal etc. ─ is Rs 1.50 lakh in a year.

So, under Section 80C, a homebuyer can not only claim a rebate on his home loan principal but also on stamp duty, registration charge and other additional expenses. However, the limit stands at Rs 1.50 lakh in a year only.

Conditions apply to claim tax benefit on property stamp duty and registration charge under Section 80C

  • One has to be either an individual or part of a Hindu Undivided Family ('HUF')
  • One should pay the stamp duty and registration charge from his pocket, the amount shouldn’t be borrowed
  • The taxpayer can claim this deduction only in the year in which he has made the payment
  • The deduction is meant only for purchase and construction of residential house property, not on plot or land purchase
  • For a co-owned property, both owners can claim deductions while filing their respective Income Tax (IT) returns
  • This deduction can only be claimed on the new property and not on a resale property
  • The deduction will be allowed only if the purchase doesn’t include any payment towards renovation or repair of the property

Source: Proptiger

Home loan tax benefits of owning a second property

If you have bought a second property with the help of a home loan or other housing finance, you can claim a tax deduction on it too.

While deductions under Section 80C on the principal amount of the loan may not be available in the case of your second house, you can enjoy tax benefits on the interest component.

In other words, if the interest payable on the loan taken for the purchase of the second house was larger than the rent received, the remaining portion could be adjusted against your other income. However, now a limit of Rs 2 lakh has been imposed on such adjustment. The remnant portion of the interest, if any, can be carried forward for 8 successive years to be adjusted against income from house property only and under no other head.

In the case of self-occupied property, any additional income remaining after deduction of Rs 2 lakh can neither be carried forward nor adjusted against any other income.

Source: HDFC

Deduction on interest paid

Interest paid to your friends and relatives in respect of money borrowed for purchase, repairs or renovation etc. of a house can also be claimed under section 24(b). All you need to do is prove the actual usage of the personal loan to renovate your property to avail of the deduction. This can be easily done by establishing a linkage between the credit of the personal loan in your bank account and its actual use. Although you are not allowed to attach any document with your ITR, you still need to preserve the documents.

If you have not claimed the deduction on interest paid for a personal loan during the last year in your income tax return, you can do so this year by revising your ITR.

Source: Livemint

A guide to calculating and claim tax benefits

  • Calculate your gross income (Write down your annual gross salary)
  • Arrive at your next taxable income by removing the deduction amount
  • Calculate all your taxes
  • Consolidate your next tax
  • You can easily claim tax benefit under section 80C, 80EE, 80EEA of income tax on the same year of income tax paid

Source: ETMoney, Cleartax

Disclaimer: The views expressed above are for informational purposes only based on industry reports and related news stories. Ashar Group does not guarantee the accuracy, completeness, or reliability of the information and shall not be held responsible for any action taken based on the published information.