Four tax benefits you must know while repaying a house loan

home loan

After the new income tax slabs are announced, income taxpayers are confused whether they should switch to the new slabs or stick with the old slab rates. If you have a home loan running whose EMI is to be paid, it is better to stick to the old income tax slabs applicable for the financial year 2019-20.

Lets understand few tax benefits which you must keep in mind while doing home loan repayments:

1.  Even if you missed an EMI, you can claim tax benefit on interest paid:

Even if you have missed a few of your EMIs during the financial year, you would still be eligible to claim deductions on the interest part of the EMI for the whole year.

2. The processing fee is tax deductible:

Most taxpayers are unaware that the charges they incurred related to their loan, qualify for tax deduction. According to the law, these charges are considered as interest and therefore deduction on the same can be claimed.

3. Principal repayment tax benefit is reversed if you sell the property before 5 years:

Any deduction claimed by you under Section 80C in respect to the principal repayment of your home loan, would get reversed. It will be added to your annual taxable income in the same year in which the property is sold so you will be taxed at the current rates applicable.

The Principal portion of the EMI which is paid by you, for the year is allowed as deduction under the Section 80C. The maximum amount to be claimed is upto Rs 1.5 lakh. But there is a condition to claim this deduction, the house property should not be sold within 5 years of the possession. Otherwise, what will happen is the deduction claimed earlier will be added back to your income in the year of sale.

Let’s also understand the difference between section 80ee and section 24.

In both the section, one can claim deduction for interest paid on loan taken for house property. Keep in mind that, Section 80EE deduction is over and above the Rs 2 lakhs limit under section 24 of the IT act. If you are able to satisfy conditions of both Section 24 and Section 80EE, both the benefits shall apply to you.

4. Claim pre-construction period interest for up to 5 years:

Do you know that you can start claiming your home loan benefits once the construction is complete and you receive the possession. Now you must be thinking, what happens to the instalments you made during the construction of the property or before you got the keys to the house? As per rules and acts, you cannot claim principal repayment, but interest paid during the period can be accrued and claimed post-possession.

Read Also : Tax Benefits of Income-Tax Act – Section 80 C

Interest repaid on a home loan is broadly classified in two categories i.e. interest paid in the pre-construction and interest of post-construction period. As far as the interest is paid in the post-construction period for self-occupied property is concerned, tax deduction can be claimed up to Rs 2 lakh under Section 24b of the IT Act. In case of any let-out property, there is no upper limit to claim the interest deduction. Also, remember that this deduction can only be claimed from the year in which construction of the house is completed.

Most of us avail a home loan to purchase an under-construction property where we receive possession later, but the home loan repayment starts immediately after availing a loan. In such cases, borrowers can also claim tax deduction under Section 24b on the interest paid during pre-construction period.

So, remember that the maximum amount that you can claim, remains capped at the overall limit of Rs 2 lakh per year, including both the pre and post-construction period’s interest repayment.

Also, it is important to know that each joint owner and borrower can claim Rs 2lakhs interest deduction i.e in case of a joint home loan for any self-occupied house property, each of the two owners can claim Rs 2lakhs in their tax return. The total interest is allocated between them based on their share of ownership.

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