- Date : 12/04/2022
- Read: 5 mins
Section 80C and Section 24 can provide you with a deduction of Rs. 1,50,000 for home loan principal repayment and a deduction of Rs. 2,00,000 for interest payment. The combination of factors such as tax deductions, low home loan interest rates, steady property prices, and an increase in people’s income has made it one of the best times to buy your dream home.
For many people, buying a home is one of the biggest and most important decisions. Hence, it is crucial to know everything about the property, home loan, and tax benefits. This article focuses on the home loan tax benefits available under Section 80C and Section 24.
What is Section 80C?
Section 80C of the Income Tax Act allows individuals to avail of deductions from their taxable income in respect of certain payments. The payments can be in the form of certain investments or expenses. The maximum deduction allowed in a financial year is the payment amount or Rs. 1,50,000, whichever is lower. The deduction of Rs. 1,50,000 can be availed through a single financial product or a combination of multiple financial products.
Now that we understand what is 80C, let us look at the tax-saving investments under it.
Deductions under Section 80C
An individual can avail of a deduction under Section 80C for the following:
a) The life insurance premium paid for self and family members (spouse and dependent children)
b) Amount paid for a deferred annuity
c) The contribution made to a Public Provident Fund (PPF)
d) Employee contribution to a recognised Employee Provident Fund (EPF)
e) Employee contribution to an approved superannuation fund
f) Subscription to a National Savings Certificate (NSC)
g) Investment in an Equity Linked Savings Scheme (ELSS)
h) Tuition fees paid to any school, college, or university for the full-time education of two children
i) Home loan principal repayment
j) 5-year tax-saving fixed deposit with a bank or a post-office
k) Contribution to a Senior Citizens Savings Scheme (SCSS)
l) Contribution to Sukanya Samriddhi Account (SSA) for girl child
Also Read: Save Tax under Section 80C With These Four Expenditures
Now that we have listed what comes under 80C, let us specifically talk about the home loan tax benefit.
Section 80C deduction for home loan principal repayment
Section 80C allows deduction from taxable income for the home loan principal repayment. The maximum deduction allowed in a financial year is the actual principal repayment amount or Rs. 1,50,000, whichever is lower. The deduction can be availed in the financial year in which the principal repayment is made even if the house property possession is received in the next financial year or later.
Consider the following examples:
a) An individual has made a principal repayment of Rs. 80,000 in a financial year. In this case, a deduction of Rs. 80,000 can be availed under Section 80C.
b) An individual has made a principal repayment of Rs. 1,75,000 in a financial year. In this case, the maximum limit of Rs. 1,50,000 will be applied. Hence, the individual can avail of a deduction of Rs. 1,50,000 under Section 80C.
Deduction for home loan expenses
Apart from the principal repayment, Section 80C provides a deduction for some other home loan expenses. These include stamp duty, registration fee, and some other expenses incurred by the individual to purchase the residential house property. The deduction can be claimed in the financial year in which the payment is made even if the house property possession is received in the next financial year or later.
Conditions under which the deduction will be revoked
If an individual sells the house property within five years of getting possession, then no deduction shall be allowed on the home loan principal repayment in the previous year. Also, the aggregate amount of deductions allowed in the preceding years shall be deemed to be the individual's income and shall be liable to tax.
Also Read: Deductions Available Under Section 80 Of The Income Tax Act
Deduction under Section 24
If an individual has bought a residential property on a home loan, the interest can be claimed as a deduction from taxable income under Section 24 of the Income Tax Act. The maximum deduction allowed in a financial year is the actual interest paid or Rs. 2,00,000, whichever is lower.
The deduction can be availed if the property has been acquired with a home loan on or after 1st April 1999, and the acquisition of the property has been completed within five years of taking the home loan.
Deduction for interest paid during the construction period
The deduction for interest paid during the period prior to acquisition can be availed after the acquisition of the property. The interest amount can be claimed in equal instalments over five years. For example, Rajesh paid an interest of Rs. 75,000 during the construction period. In this case, Rajesh can avail of a deduction of Rs. 15,000 every year for five years from the year in which he gets possession.
Also Read: Income Tax In India: An Interesting History
Low home loan interest rates - Additional benefits for home buyers
In the above section, we have discussed how a home buyer can avail of deductions under Section 80C for principal repayment and Section 24 for interest payment. Apart from the tax deductions, homebuyers can currently (April 2023) benefit from low home loan interest rates. Most financial institutions are providing home loans in the interest rate range of 6.5% to 7.0%.
On the other hand, house prices have remained stable for the last few years, and people's disposable incomes have gone up. So, a combination of factors such as a rise in people’s income, tax deductions, low home loan interest rates, and stable property prices have boosted the demand for homes. So, if you are looking to buy a house, this is one of the best times to buy your dream house.
For many people, buying a home is one of the biggest and most important decisions. Hence, it is crucial to know everything about the property, home loan, and tax benefits. This article focuses on the home loan tax benefits available under Section 80C and Section 24.
What is Section 80C?
Section 80C of the Income Tax Act allows individuals to avail of deductions from their taxable income in respect of certain payments. The payments can be in the form of certain investments or expenses. The maximum deduction allowed in a financial year is the payment amount or Rs. 1,50,000, whichever is lower. The deduction of Rs. 1,50,000 can be availed through a single financial product or a combination of multiple financial products.
Now that we understand what is 80C, let us look at the tax-saving investments under it.
Deductions under Section 80C
An individual can avail of a deduction under Section 80C for the following:
a) The life insurance premium paid for self and family members (spouse and dependent children)
b) Amount paid for a deferred annuity
c) The contribution made to a Public Provident Fund (PPF)
d) Employee contribution to a recognised Employee Provident Fund (EPF)
e) Employee contribution to an approved superannuation fund
f) Subscription to a National Savings Certificate (NSC)
g) Investment in an Equity Linked Savings Scheme (ELSS)
h) Tuition fees paid to any school, college, or university for the full-time education of two children
i) Home loan principal repayment
j) 5-year tax-saving fixed deposit with a bank or a post-office
k) Contribution to a Senior Citizens Savings Scheme (SCSS)
l) Contribution to Sukanya Samriddhi Account (SSA) for girl child
Also Read: Save Tax under Section 80C With These Four Expenditures
Now that we have listed what comes under 80C, let us specifically talk about the home loan tax benefit.
Section 80C deduction for home loan principal repayment
Section 80C allows deduction from taxable income for the home loan principal repayment. The maximum deduction allowed in a financial year is the actual principal repayment amount or Rs. 1,50,000, whichever is lower. The deduction can be availed in the financial year in which the principal repayment is made even if the house property possession is received in the next financial year or later.
Consider the following examples:
a) An individual has made a principal repayment of Rs. 80,000 in a financial year. In this case, a deduction of Rs. 80,000 can be availed under Section 80C.
b) An individual has made a principal repayment of Rs. 1,75,000 in a financial year. In this case, the maximum limit of Rs. 1,50,000 will be applied. Hence, the individual can avail of a deduction of Rs. 1,50,000 under Section 80C.
Deduction for home loan expenses
Apart from the principal repayment, Section 80C provides a deduction for some other home loan expenses. These include stamp duty, registration fee, and some other expenses incurred by the individual to purchase the residential house property. The deduction can be claimed in the financial year in which the payment is made even if the house property possession is received in the next financial year or later.
Conditions under which the deduction will be revoked
If an individual sells the house property within five years of getting possession, then no deduction shall be allowed on the home loan principal repayment in the previous year. Also, the aggregate amount of deductions allowed in the preceding years shall be deemed to be the individual's income and shall be liable to tax.
Also Read: Deductions Available Under Section 80 Of The Income Tax Act
Deduction under Section 24
If an individual has bought a residential property on a home loan, the interest can be claimed as a deduction from taxable income under Section 24 of the Income Tax Act. The maximum deduction allowed in a financial year is the actual interest paid or Rs. 2,00,000, whichever is lower.
The deduction can be availed if the property has been acquired with a home loan on or after 1st April 1999, and the acquisition of the property has been completed within five years of taking the home loan.
Deduction for interest paid during the construction period
The deduction for interest paid during the period prior to acquisition can be availed after the acquisition of the property. The interest amount can be claimed in equal instalments over five years. For example, Rajesh paid an interest of Rs. 75,000 during the construction period. In this case, Rajesh can avail of a deduction of Rs. 15,000 every year for five years from the year in which he gets possession.
Also Read: Income Tax In India: An Interesting History
Low home loan interest rates - Additional benefits for home buyers
In the above section, we have discussed how a home buyer can avail of deductions under Section 80C for principal repayment and Section 24 for interest payment. Apart from the tax deductions, homebuyers can currently (April 2023) benefit from low home loan interest rates. Most financial institutions are providing home loans in the interest rate range of 6.5% to 7.0%.
On the other hand, house prices have remained stable for the last few years, and people's disposable incomes have gone up. So, a combination of factors such as a rise in people’s income, tax deductions, low home loan interest rates, and stable property prices have boosted the demand for homes. So, if you are looking to buy a house, this is one of the best times to buy your dream house.
