In order to reduce the burden of home loan borrower and increase affordability, the government provides various incentives to home loan borrowers. You can claim a deduction of up to Rs 1.5 lakh against the home loan principal repayment made during the financial year under Section 80C for a self-occupied house.
Apart from this, you are also allowed to claim a deduction of up to Rs 2 lakh against the interest paid during the year for a self-occupied house. These are the common tax rules which most of us are aware of but there are certain other provision that home loan borrowers should be know. Some of them are listed below.
1. You can claim the deduction on interest repayment on home loan only after the completion of the construction of the property. You can’t claim any deduction on the principal repayment done during the under-construction period while the pre-construction interest can be claimed in five equal installments after you receive the possession of the property.
2. But if the construction of the property is not complete within five years (was increased from three years last year) from the year in which loan is taken, the deduction against the interest repayment reduces from Rs 2,00,000 per year to just Rs 30,000.
3. If you sell the property within five years of claiming the deduction, the entire deductions claimed against the principal repayment is reversed and is treated as income for the year in which the property is sold and is taxed as per slab.
4. From this year, home buyers enjoy an additional tax deduction of Rs 50,000 on the interest paid on home loan. There are three conditions which should be met for availing this additional tax deduction.
a. This deduction is available only to first time home buyers
b. The loan on the house property should not exceed Rs 35 lakh
c. The value of the house property should not exceed Rs 50 lakh
5) In case of second house, the entire interest paid during the year is eligible for tax deduction. This will reduce the effective home loan rate substantially as the entire amount is deductible from your income.
6) In case you take a joint home loan, both the deductions against principal repayment as well as interest repayment can be claimed separately by both the co-borrowers. So, a deduction of Rs 3 lakh can be claimed against principal repayment and Rs 4 lakh can be claimed against interest repayment of home loan. But there are two conditions to avail this double deduction. First, the co-borrowers should be co-owners of the property and, second, they should be sharing the Equated Monthly Installments (EMIs). If one of the co-borrowers is not paying any EMI, he or she can’t claim any deduction.
7) You can claim deduction against the stamp duty and registration charges paid under Section 80C subject to a maximum limit of Rs 1.5 lakh in the year in which you have paid the charges.
8) You can claim both House Rent Allowance (HRA) and home loan deductions if you have bought a house using a home loan but are living in another city on rent due to job.
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