Tax Benefits of A Homebuyer
Sep 23, 2019 Home Loan
Buying a property is a huge financial investment for a lot of people. To unburden the homebuyers, the government offer a lot of tax deductions and benefits which may vary from property type, nature of construction and the home loan amount. For example, first-time buyers can claim more tax deduction when they buy an under construction property rather than a readymade one.
To understand it more, the Income-tax Act is divided into three parts- 80C, 80 EE and 24 B.
To understand it more, the Income-tax Act is divided into three parts- 80C, 80 EE and 24 B.
Section 80C
Under this section, the tax deduction is allowed for the principal amount paid for the loan. The maximum deduction allowed under this section is Rs 1.5 Lacs. It includes the amount invested in PPF account, tax saving deposits, equity-oriented mutual funds, nation-saving certificate, and senior citizen saving scheme. The tax benefit is allowed only after the completion of the construction and upon receiving the certificate of completion.
The deduction on the interest under this scheme is allowed only for the renovation and the extension of the property, just after the construction of the property has been completed.
The deduction on the interest under this scheme is allowed only for the renovation and the extension of the property, just after the construction of the property has been completed.
Section 24B
Under this section, the deduction is given for the interest paid for the loan amount. The maximum deduction allowed is Rs 2 lacs for self-occupied property. The home loan can be taken for construction, renovation, an extension of property, repair of the property.
One important point is that, if the property construction has not been completed within five years from the date of taking the loan, the maximum limit decreases from Rs 2 lacs to Rs 30,000.
One important point is that, if the property construction has not been completed within five years from the date of taking the loan, the maximum limit decreases from Rs 2 lacs to Rs 30,000.
Section 80EE
This section covers the tax rebate for the first time home buyers and provides the additional deduction of Rs 50,000 over the tax deduction of Rs 2 lacs under the Section 24 and Rs 1.5 lacs under the Section 80C. This can be availed from the financial year 2016-17 onwards. The home loan must have been taken between 1st April 2016 to 31st March 2017. The deduction is allowed only if the property purchased is less than Rs 50 lacs and the value of the loan taken is less than Rs 35 Lacs.
If the property is sold within five years of completion
If you sell a property within five years of the completion of the construction, then the tax benefit you availed for the principal amount on loan taken is reversed and is treated as your income and added to your salary. There will, however, be no reversal for the interest paid.
When you take the loan from friends and family
When you take the loan from friends and family, the deduction is allowed only for the interest paid and not eh principle amount. Relevant documents shall be presented to avail the deductions.
Deduction for the under-construction property
If the loan has been disbursed for the under-construction property and the monthly EMI has started, unless the possession of the property has been taken, there is no tax benefit. The tax deduction is available only if the under construction property is completed in the same financial year; the loan has been taken.
If the loan is taken jointly
If the loan is taken together by the spouses, then they both can claim for the tax deduction under Section 80C. The maximum deduction given to both the owners is Rs 1.5 Lacs.
Claiming both HRA and home loan
If you have taken the home loan but are staying in a rented place, then you are entitled tax benefit under Section 24B and 80C as well as house rent allowance. If you have taken the home loan and have rented it out and you are yourself staying in the rented place, then you are entitled to both the benefits. The rent you will receive will be taxable.
Tax benefit on the missed EMI
You can claim the tax benefit on the interest component of the housing loan even if you have missed and EMI provided you have the interest certificate issued by the bank. However, the tax deduction on the principal component is not applicable here since it is dependent on the actual repayment.
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