In this article I am writing about the Home Loans and how to get the maximum benefits on Tax Savings. If you are not aware, Home Loans are the best source for Tax Savings plan. You cannot use Car Loans, Personal Loans or any other loans for the Tax Savings plan. But, still many people not aware of how to utilize the potential of use this plan. We will look into this article on rules and regulations you must know before planing the Home Loans and getting the Tax Benefits. Please post your feedback on the comments section. I would be happy to answer all your questions. You can subscribe to our future articles here.
Tax Limitation on Home Loans
Income Tax act 1961, provides two section where you can use home loans for the Tax Savings purpose. The two sections are :
- Section 80c
Under this section maximum of Rs.100000(one lac) can be exempted from the Income Tax on repayment of principal on home loans.
- Example 1
If your Taxable Income is Rs.500000 and your yearly home loans principal repayment is Rs.80000, then your Taxable Income is Rs.500000 – Rs.80000 = Rs.420000.
- Example 2
If your Taxable Income is Rs.500000 and your yearly home loans principal repayment is Rs.100000, then your Taxable Income is Rs.500000 – Rs.100000 = Rs.400000.
- Example 3
If your Taxable Income is Rs.500000 and your yearly home loans principal repayment is Rs.140000, then your Taxable Income is Rs.500000 – Rs.100000 = Rs.400000. Because you can exempt maximum of one lac under this section.
- Other savings
Note that under this section (80c) you can show other savings like Public Provident Fund (PPF), etc. Maximum limit Rs.100000 includes all the savings. If you are declaring Rs.100000 as the principal payment, then you can not include other savings.
- Section 24b
Under this section maximum of Rs.150000(1.5 lac) can be declared as the interest payable on the Home Loans. As we have shown the examples, here as well the rule is same. You can exempt maximum of Rs.150000.
Points to Consider while computing Income Tax on Home Loans
- Income Tax exemption can be sought only once the construction is complete. You can seek Tax Benefits only from the financial year in which the construction is complete. There will be no deduction for the year in which the construction is still on as at the end of the year.
Income Tax Policies on Principal Repayment
- Principal Repayment can be considered as a valid investment under section 80C only if it is made for a self occupied house. That is, you should be living in the house for which you are making the Principal Repayment.
- If the house is not in the city in which you are working – in which case you can claim the principal repayment as an investment under sec 80C even if the house is not self occupied. For example, if you are working in Bangalore and have one house in Chennai for that you are paying the EMI, you can claim the Tax Benefits on the Principal Repayment even if the Chennai house is rented out.
- If you have taken the home loan in joint name, the Tax Benefit (for both Principal Repayment and Interest Paid) would be available to both of you if the house is also in joint name.
Income Tax Policies on Interest Repayment
- The interest payable for the pre-acquisition or pre-construction period would be deductible in five equal annual installments commencing from the year in which the house has been acquired or constructed.
- The interest towards home loan taken for purchase, construction, repairs, renewal or reconstruction of house property is eligible for deduction under section 24(b).
- In case the property is rented out even for a part of the year, there shall be no limit on this, and entire interest on Housing Loan is deductible under section 24(b).
- The best part is that there is no restriction of “Self Occupied Property” for claiming the tax break on interest paid under sec 24. In fact, if you have rented out the house, and the rent you receive is more than Rs. 1.5 lacs per year, ALL interest paid (even if it is more than Rs. 1.5 lacs) is deductible from the rent received – provided that the interest paid is not more than the rent received.
- If you are paying the EMI for 3 houses, you can claim interest paid for all the 3 houses under Sec 24 as long as it doesn’t exceed Rs. 1.5 lacs.
Few Examples would help to understand
Kamalan bought a house in Bangalore and staying that house. He got the loan amount of Rs.1000000 for that house. He is also working in the Bangalore city. His yearly Principal Repayment is Rs.100000 and Interest Repayment is Rs.40000.
- He can save total of Rs.140000(Rs.100000 + Rs.40000) since he is occupied that house and also staying in the same city.
Later he bought another house in the Chennai and took another Home Loan of Rs.1200000. He then started paying the EMI for that loan amount. He opted to rent out that house. His Principal Repayment is Rs.110000 and interest payable is Rs.50000 per anum.
- He is eligible to show the Principle Repayment under the Tax Savings. Please note that the maximum amount he can show as the Principal Repayment is Rs.100000. In this case even if the rule permits him, he already repaying the principal of Rs.100000 for the Bangalore house. So, he already reaching the maximum limit.
- But, in the case of rent payable, there is no limit on Tax Savings. It is because he rented out the house. This rules under section 24b. When you are applying for Home Loans and proposing that the house will be given for rent, you will be eligible for no limit on interest payable under Tax Savings.
Some of the terms used in the Home Loans:
- EMI: Equated Monthly Installment till the loan is paid back. It consists of a portion of interest and the principal
- Floating Rate of Interest: Rate of Interest which varies with the market lending rate. This means that there is an element of risk of paying more than budgeted amount in case the lending rates goes up
- Monthly Reducing Balance: In this system interest reduces monthly with repayment of Principal amount
- Annual Reducing Balance: In this system principal is reduced annually at the end of the year so you end up paying interest even for the portion of principal you have actually paid back
- Fixed Rate of Interest: Rate of Interest remains unchanged throughout the period of the loan
- Processing Charge: It’s a fee payable to the lender on applying for the loan
- Prepayment Penalties: When loan is paid back before the agreed term of the loan, then banks/ institutions charge penalty for the prepayment
- Commitment Fee: Some institution charge commitment fee in case the loan is not availed within a stipulated period, after it is processed and sanctioned
- Miscellaneous Cost: It is quite possible that some lenders may charge documentation or consultant charges .
Use our consulting service for Home Loans (JUST Rs.250)
Summary
Update : Home Loans and Income Tax Benefits – Part 2
The above write up is very comprehensive on Home Loans and Tax Savings. The facts are taken from many sites and I used different resources to check the accuracy. This post will be very useful for the people who want to invest on properties and get the Benefits of Income Tax. I might have missed few points and I will update the post if I come across. You can post it in the comments if there is any mistakes. You can subscribe to our RSS feeds.
If you have any queries on Home Loans and Tax Savings, please drop a comment with your mail id, I will contact you with the details.
September 25, 2011 at 10:53 pm
Is there any limit to the number of times I can switch my housing loan from existing institution to another with respect to Income Tax benefits or Capital Gains benefits? I had taken a loan from HDFC on a flat (possession taken) and switched the loan to SBI. Now I want to switch my housing loan (re-finance) to a third financial institution. Is there any restriction on this? I do know that I would have to pay pre-closure / processing charges etc. Will I continue to get the same exemption on income which I have been getting?
September 26, 2011 at 5:24 am
I have a flat in kolkata which I have purchased from my own fund and therefore no question of tax benifit.
Now, I have taken a flat in Mumbai and taken a loan and paying interest almost 1.5 Lakh P.a.
Can I claim the interest 1.5L as exception u/s 24 and principle under sec 80C.
Please how could I take maximum tax benifit.
regards,
R.K.Hari
October 16, 2011 at 9:12 am
I want to know if there is joint home loan on husband and wife’s name, then can they both claim tax benefit and if yes in what ratio? What will be the maximum limit for principal and interest for both?
October 29, 2011 at 10:17 pm
hi,
I have purchased a flat in Gurgaon in 2010 (joint owner – me & wife) and possesion is expected in 2013. Am staying right now in a rented apartment. Now we are planning to have a ready to move in flat to live in Delhi. Me and my wife both are working. My questions are:
1. Can we claim HRA also after moving in a self property
2. If not, what is the tax benefit coz HRA and Interest bendfit under sec 24 is almost the same
November 5, 2011 at 10:16 pm
can the processing charges and stamp duty paid for obtaining HOUSING LOAN can be claimed as deduction u/s 24 of the IT Act, 1961
November 22, 2011 at 8:03 am
We can claim tax benefit while home is in construction phase. Please go through below IT fact.
Deductions from income from house property.
24. Income chargeable under the head “Income from house property” shall be computed after making the following deductions, namely:—
(a) a sum equal to thirty per cent of the annual value;
(b) where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital:
Provided that in respect of property referred to in sub-section (2) of section 23, the amount of deduction shall not exceed thirty thousand rupees :
Provided further that where the property referred to in the first proviso is acquired or constructed with capital borrowed on or after the 1st day of April, 1999 and such acquisition or construction is completed 50 [within three years from the end of the financial year in which capital was borrowed], the amount of deduction under this clause shall not exceed one lakh fifty thousand rupees.
Explanation.—Where the property has been acquired or constructed with borrowed capital, the interest, if any, payable on such capital borrowed for the period prior to the previous year in which the property has been acquired or constructed, as reduced by any part thereof allowed as deduction under any other provision of this Act, shall be deducted under this clause in equal instalments for the said previous year and for each of the four immediately succeeding previous years:]
51 [Provided also that no deduction shall be made under the second proviso unless the assessee furnishes a certificate, from the person to whom any interest is payable on the capital borrowed, specifying the amount of interest payable by the assessee for the purpose of such acquisition or construction of the property, or, conversion of the whole or any part of the capital borrowed which remains to be repaid as a new loan.
Explanation.—For the purposes of this proviso, the expression “new loan” means the whole or any part of a loan taken by the assessee subsequent to the capital borrowed, for the purpose of repayment of such capital.]
December 2, 2011 at 3:07 am
Hi,
I am taking a home loan for buying a new house, with my father as co-applicant in the loan application. My question is that if the house is registered in the names of my mother and father jointly, then would I be eligible for tax benefit under sections 80c & 24b ??
i.e. the loan would be sanctioned to me and my father jointly, so is it possible for me to get tax benefit when I am not the registered owner/co-owner of the property??
December 3, 2011 at 9:35 pm
Dear sir,
i wish to buy a flat to live in of Rs. 25L, loan to be paid in 15 yrs, emi wud be 20k, how shall i calculate the tax benefit?
1. can i take benefit of both the Principal amount paid as well as interest amount paid in the EMI?
how to know the brk-up of Principal n interest amount, for the tax claim?
2. what is the link between home lone emi and 80c savings i.e. LIC, PPF, ELSS?
plz guide!
thnx!
December 5, 2011 at 2:07 am
Hello
I have a house that loan period is over and i stay in this house . Now i am planning to buy a house in a different city . will i be able to claim the tax benifit on the new house that i have planned to buy in the other city .
Kinly confirm
thanks
sajith
December 6, 2011 at 2:09 am
Hi
Will you please let me know under the present rules of income tax how can I get the benefit of payment of registration fees, Stamp duty, pre-EMI interest and principal loan for a under construction flat in Navi Mumbai which may take one more year to complete for occupation. At present I am staying in a Central Govt. quarter where I am not getting HRA.
Please reply me as soon as possible.
Thanks
Ashim Sen….06.12.2011
email: ashimsen03@rediffmail.com
Please
December 28, 2011 at 9:28 pm
Dear sir,
i am salaried from hyderabad I have purchased a house property in 2004 with IDBI houseing loan and same was sold out in the month of june 2011, at the time of sold out i have repaid my housing loan total out standing Rs 1.15 lac as principal amount is Rs near 1.00 lac and interest Rs 0.15 lac. Please let me suggest can I avail 80c benefit for the AY 2011-12 against my principal repayment
January 1, 2012 at 9:48 pm
hi,
I have 2 home Loans in Virar,Thane and i currently live in Goregaon(Mumbai). Both Home Loans are in ready possesion and not rented out.
1st Loan
Principal:- 20,000/-
Interest is 1,00,000/-
2nd Loan
Principal:- 20,000/-
Interest is 1,78,000/-
How much i can claim in 24 C and can i still opt to show an HRA?
January 11, 2012 at 2:20 am
I have three flats in my name i.e. one at Allahabad(acquired in 1996-on rent) and two at Surat (one acquired in Feb2007-self occupied & other one acquired in July 2011- on rent). All were purchased by taking home loan from SBI. Following are the interest accrued(+projected) for FY 11-12:-
1. Allahabad – Interest- Rs. 226/-(rent earned Rs. 55500/-)
2. Surat -1(Self Occupied)- Interest- Rs. 7948/- Loan repaid in Aug 2011
3. Surat -2 – Interest – Rs. 1,12,408/-(rent earned Rs. 51,000)-
Please guide me under above scenario, how much home loan interest component I can claim for my interest rebate? Thanks for the help.
Ashok Kumar
January 16, 2012 at 3:31 am
Hi,
I have moved to our new home and we have taken home loan on this property. my question is I am showing this as a renting property but I am only staying there my question is
1. can we do that?
2. Because in renting there is no limit for tax.
3. what all proof we have to submit for this.
January 24, 2012 at 12:59 am
Hi Krishna,
I am working in MNC and my brother also working in MNC. We are planning to get the home loan jointly to construct the house in the family property land (land is in my father name). In this case loan can be in our names(I and my brother) but the land is in my father name. Is it possible to get tax benifit in this case? Please provide your thought.
Regards,
Shanmugam T
February 10, 2012 at 1:08 am
Hi,
i am paying a Interest re-payment of Rs.1.6lakhs and principal repayment of Rs.70K. How much exemption is permissable under section 80C and 24.
Please confirm.
February 13, 2012 at 9:04 am
Hello,
I just taken a Home Loan. With My mother as Co-owner and also co-borrower.
But I will be paying the whole EMI.
So Can I claim max 01 1.5 LPA for interest & 1 lpa for principal ?
February 13, 2012 at 12:10 pm
I have taken 17 lakhs joint HDFC Loan account with my wife for period of 10 years to purchase an apartment in Bangalore. It has
been 4 years now. We are being deducted 23600 each month at 12.5% Floating interest. Now when we want to close the Loan account by March 2012, the bank says we have to pay 12 lakhs to
close it. Please clarify:
1)if we can claim the registration and stamp duty charges from HDFC while closure.
2) If 12 lakhs mentioned by them is correct amount or are they claiming penalty from us? since the rule is now that there should be no penalty on prepayment of loan account.
Thanks,
February 16, 2012 at 9:44 pm
are the flat registration charges are exumted under IT of a salaried employee, plz clarify
February 17, 2012 at 12:06 pm
I want to know that what happens when housing loan taken on 03 units, one is SOP and other two are let out. Interest paid on borrowed capital is for SOP Rs.1,40,000/- and from other two loss is Rs.30,000/- and Rs.35,000/-. How much amount will be taken into account under section 24(b). Either Maximum Rs.1,50,00/- or all together Rs.2,05,000/- (1,40,000+30,000+35,000)
February 26, 2012 at 3:36 am
I have two home loans for 2 different flats and both of them are self occupied and not on rent
I have and EMI of 16000/- and 13500/- for these two loans –
For the loans combined – I have an annual principal repayment as – 150,000/- roughly and interest of 146,000/-
what is the max I am permitted to claim for tax benefit from both these loans in the case mentioned and where I CAN get the details of these
February 27, 2012 at 12:14 am
i thought of taking a home loan. but the land is in my dads name. will it create any issue? will i get all the tax benefits even if the land is in my dads name?
February 27, 2012 at 2:17 am
Hello Navaneeth,
Yes. The land should be in your name. It would create problem in the tax benefits aswell. You can not apply for the loan if the house can not be registered on your name.
Thanks,
Krishna
February 27, 2012 at 2:25 am
HI Arup,
House 1 – Slef Occupied
– Rs. 150000 interest payment
House 2 – Notional rent
- No limit on the interest payment
- Declare the notional rent as the income under other sources of Income
- Rs.100000 as the principal payment including both the houses and investments on section 80c.
Thanks,
Krishna
February 27, 2012 at 2:29 am
Hello tushar,
Yes. You are corerct.
Thanks,
Krishna
March 6, 2012 at 3:28 am
Hello,
I want to ask if we can borrow money from freinds/relatives (instead of bank) as a homeloan and repay them at mutually agreed interest rates (and hence EMIs) and still claim income tax benefits for principle and interest? if yes, what kind of agreement and other documentation would be needed.
March 15, 2012 at 10:03 am
sir,
i am residing in meerut.I have purchased a flat in dehradun.presentlly it is on rent.For current F.Y. interest on loan amt. is 210000 & rent income is 230000.My annual income from salary is 550000.Principal amt.paid in the FY is 147000. Pl guide me how much rebate i will get under section 24 (b)or 24.Pl also give a detailed complete calculation of the tax which i have to pay finally in current F.Y. ,on the basis of the above data.
thanking you .
March 20, 2012 at 7:50 am
I have taken a home loan for further constructionm of upper floor in exixting house which is on my father’s name.The home loan has is in the name of mine and my father and I am paying the EMI.Can I get Incometax benmefit?
March 20, 2012 at 5:37 pm
HI Jony,
You must be the home owner.
Thanks,
Krishna
April 10, 2012 at 11:10 pm
I’m staying in chennai in rented building, I have got a home loan and I’m paying an EMI of Rs.22,500 every month starting from april 2012. Am i eligible for tax deduction for 2012-2013?. If so,what documents should i submit for tax exemptions?. Kindly reply to my mail. Thank you
April 19, 2012 at 11:35 pm
I had taken a home lone from LIC in my name but the property is in my Fathers Name, I am not even a co -owner also. Do am I eligible for any tax benefit for the amount i am repaying.
Thanks
John