Tax Benefits

Tax authorities provide exemptions from tax payments and certain benefits when a property is brought with loans from financial institutions.

SECTION 24: INCOME TAX BENEFIT ON INTEREST ON HOME LOAN

Income tax Act, Section 24 states the complete tax benefits on Home loan in lieu of payment of interest as a deduction. According to this section, the income from home property is reduced by the amount of paid interest on the Home loan in case loan has been taken for the purchase/repair/construction/reconstruction/renewal of a residential property.

Under this section, maximum tax deduction allowed is subject to a maximum of Rs 2,00,000. (Budget 2014). If the property on which home loan is taken is not self-occupied, there is no maximum limit described and the taxpayer can take advantage of the whole interest amount as the tax deduction.

** In case, the purchased property is not self-occupied by the owner due to employment, profession or business location then, the tax deduction amount under this section is only Rs 2,00,000.

Also, note that the tax deduction under this section on Interest of Home Loan is deductible on the payable basis that means on an accrual basis. Hence, the deduction under this section could be claimed on a yearly basis even if payment has not been made during the whole year as compared to Section 80C that allow for deduction in case of payment basis.

INCOME TAX TREATMENT FOR PRE CONSTRUCTION INTEREST

In many cases, the amount is paid for the purchase of under construction property. Some home buyers take the loan for this and start paying the due EMI to the Bank. In such cases, Section 24 very specifically states that Tax Deduction for payment of interest will not be permissible before the completion of the construction. In such cases,

  1. If the Loan is taken for Repair/ Reconstruction/ Renewal/ No Tax Deduction is allowed for Interest paid before Completion.
  2. If the Loan is taken for Purchase/ Construction: The Interest paid before the construction completion would be aggregated and the whole amount would be allowed as the tax deduction in 5 Instalments for 5 Financial Years from the year in which the construction is completed.

SECTION 80C: TAX BENEFIT ON HOME LOAN (PRINCIPAL AMOUNT)

The amount which is paid for the Repayment of Principal Amount of Home Loan is allowed as the tax deduction and it falls under Section 80C of the Income Tax Act. The maximum tax deduction under Section 80C is Rs. 1,50,000. (budget 2014)