Recent changes in tax laws
1. Budget 2019-20 has allowed for additional tax benefits for interest payments
with following terms, if -
a) Market value of house should be less than Rs 45 lakhs
b) Loan has to be taken before 31 March 2020
then total rebate under Section 24 would be Rs 3.5 lakhs.
2. Interim budget 2019 had allowed home owners to declare two houses as self
occupied, this has two benefits
a) You can claim Nil value for two self occupied houses, earlier you would have
had to pay notional rent on a self occupied house lying vacant
b) Interest paid for home loans against both these houses can be clubbed together
and claimed under Section 24
Linked articles -
1. House property declaration - this article outlines how a house property declaration can be submitted
2. Managing house property details - this article outlines how Payroll Managers can review / approve and manager
the overall process
1. Summary of Tax Benefits
| Tax Benefit | Principal Repayment | Interest Repayment |
| First Home - Self Occupied | Actual principal repaid subject to a maximum of Rs. 1,50,000 (Rs. 2 lakh for senior citizens) can be claimed as investment eligible for tax deduction under section 80C. | Actual home loan interest paid subject to a maximum of Rs. 2 lakh (Rs. 3 lakh for senior citizens) if house construction completed within 5 years from the end of the financial year in which loan is taken. If construction of house not completed within five years then Rs. 30,000 is tax exempt. Additional deduction of Rs. 1.5 lakhs for interest on home loan availed for purchase of Affordable houses of up to Rs. 45 lakh till March 2020. |
| First Home - Rented or Vacant | Upto Rs. 1,50,000 (Rs. 2 lakh for senior citizens) eligible for tax deduction under Section 80 C. The deduction is available only if the property owner is staying in a different city for work. | There is no limit on the interest which can be considered for exemption but the total rebate under Section 24(b) across all properties cannot exceed Rs 2 lakhs |
| Second Home | None | Interest paid on loan for second home can be added to Section 24(b) calculation. Interest which can be considered is limited Rs 2 lakhs if self occupied, for rented property there is no limit to the interest which can be considered for deduction. |
| Under Construction Property | None | The interest paid can be claimed in equal parts in five financial years post completion or handing over of property within the overall annual limit of Rs. 2 lakh under Section 24(b). |
2. Tax Benefit on Home Loan Principal Repayment u/s 80C
-
Amount paid as principal repayment amount for construction of purchase of a new
house property by an individual or HUF is allowed as tax deduction under section
80C. To claim this tax benefit you can use the head "80C - Housing Loan Principal
Repayment" in the Tax Saving section
- The maximum amount of tax deduction allowed u/s 80C is Rs 1,50,000
- The amount paid as stamp duty & registration fee is also allowed as a tax
deduction u/s 80C. This deduction can be claimed whether you have taken a loan
or not. You can claim the deduction in the year you incur these expenses. To
claim this you can use the head "80C - Stamp Duty For House Registration" in
the Tax Savings section
Some conditions for claiming these deductions -
- You can claim deduction only if the construction of property is complete and
you have received a completion certificate for the same
- No deduction would be allowed under this section for repayment of principal
for those years during which the property was under construction
- Deduction is also available whether the property is self-occupied or let out
- The benefit can also be claimed for more than one house property
Reversal of 80C tax benefit -
If you have claimed the deduction u/s 80C, then you should avoid selling the
house property in less than five years from the end of financial year in which
you received its possession. If you sell the property within this time limit
then you will not be eligible to claim any deduction for the principal repaid
during the current F.Y. and the total amount of tax deduction already claimed
in respect of earlier years shall be deemed to be your income of such year in
which you sold the property and you will be liable to pay tax on that income.
3. Tax Benefit on Interest Paid on Home Loan u/s 24 of Income Tax Act
Tax Benefit on payment of interest on housing loan is allowed as a deduction
under section 24 of the Income Tax Act. Section 24 of the Income Tax Act states
that the amount of interest on housing loan whether accrued or paid, shall be
deducted from the income from house property. Here, the loan must have been taken
for the purpose of purchase or construction or repair or renewal or reconstruction
of a residential house property.
Two types of deductions are available u/s 24
1) Standard deduction of 30% of annual value : Section 24(a)
2) Interest paid on home loan : Section 24(b)
Standard deduction:
For rented properties tax deduction of 30% of net annual value of the property
is allowed to the taxpayer. Net annual value is calculated as gross annual value
minus municipal taxes Paid. This deduction is allowed irrespective of the amount
spent on insurance, repairs, water and electricity supply, etc.
For self occupied property the standard deduction is nil.
Tax deduction on interest paid:
- In respect of self-occupied residential house property, interest incurred on
capital borrowed for the purpose of acquisition or construction of house property
shall be allowed as deduction up to Rs. 2 lakhs (Rs. 3 lakh for senior citizens).
The deduction shall be allowed if capital is borrowed on or after 01-04-1999
and acquisition or construction of house property is completed within 5 years
- In respect of let-out property, actual interest incurred on capital borrowed
for the purpose of acquisition, construction, repairing, re-construction shall
be allowed as deduction
- In case the property for which the home loan has been taken is not self-occupied
i.e. rented or deemed to be rented, no maximum limit for tax deduction has been
prescribed and the taxpayer can take deduction of the whole interest amount u/s
24. However, if the owner has not occupied the property himself due to his employment,
business or profession carried on at any other place, which has forced him to
reside at any other place, then the amount of tax deduction available u/s 24
stays limited to Rs 2 lakhs only
- It is also important to note that this tax deduction of interest on home loan
u/s 24 is deductible on payable basis, i.e. on accrual basis. Hence, deduction
u/s 24 should be claimed on yearly basis even if no payment has been made during
the year as compared to section 80C (deduction on principal repayment) where
deduction is allowed only on payment basis
- The tax benefit under section 24 is reduced from Rs 2 lakhs to Rs 30,000, if
the property is not acquired or construction is not completed within 5 years
from the end of Financial Year in which the loan was taken
- In respect of self-occupied residential house property, interest incurred
on capital borrowed for the purpose of reconstruction, repairs or renewals of
a house property shall be allowed as deduction up to Rs. 30,000
Pre-construction interest
Deduction on pre-construction interest is allowed when you have taken a loan
for purchase or construction of a house property. However, if the loan is taken
for repairs or reconstruction then deduction is not allowed. The deduction for
this interest is allowed in 5 equal installments starting from the year in which
the house is purchased or the construction is completed. EazeHR considers only
loan for purchase or construction of house property.
Though pre-construction interest is allowed to be claimed as tax deducted in 5 equal yearly installments, which can be claimed beginning the year in which the construction of property is completed, the total amount that can be claimed in a year is subject to a threshold of Rs 2 lakhs in case of a self-occupied house property.
4. Section 80EE - Deduction for First Time Home Buyers
Just like the deduction u/s 24, deductions under section 80EE is also available
on the interest paid on home loan by you. However, unlike section 24, this deduction
is only available to first time home buyers. A deduction of Rs 50,000 is available
over and above deductions u/s 24 and u/s 80C.
Conditions necessary for claiming deduction u/s 80EE
- The deduction would be available to be claimed from Financial Year 2016 onward
- The deduction can be availed on home loans sanctioned between 1st April 2016
and 31st March 2017 only
- The value of property for which the loan has been taken should be less than
Rs 50 lakh
- The home loan amount should not exceed Rs 35 lakh
- The tax benefit here can be claimed till the time repayment of loan continues
- Deduction is only applicable on interest of home loan paid for first house
property
- The property in question can be either self-occupied or non-self-occupied
- If you claim deduction under this section then you will not be eligible to
claim the deduction u/s 24 again for the same amount of interest
Eligibility for Claiming Section 80EE Deductions
The eligibility of this deduction depends on the following points -
- The deductions under this section can be claimed only by individual taxpayers
on properties purchased either singly or jointly
- There are a few types of assessees which are not allowed to claim this deduction
like Hindu Undivided Families (HUFs), companies, trusts, Association of Persons
(AOP) etc.
- Section 80EE is applicable on a per person basis instead of a per property
basis. So, suppose you have purchased property jointly with your spouse and you
both are paying the installments of loan, then you both can individually claim
this deduction
- It is not necessary to reside in the property for which you want to claim this
deduction. So, borrowers staying in a rented accommodation can also claim this
deduction
5. Section 80EEA - Deduction for affordable housing
Additional deduction of Rs 1.5 lakhs u/s 80EEA on interest paid for a home loan
if the residential house property’s stamp duty value does not exceed Rs 45 lakhs.
Conditions necessary for claiming deduction u/s 80EEA
- The home loan must be taken from a Financial Institution or a Housing Finance
Company
- The stamp duty value of a house property under this section cannot cross the
threshold of Rs 45 lakhs
- The concerned individual taxpayer should not be eligible to
claim any deductions under the existing Section 80EE of the Income Tax Act
- A maximum amount of Rs 1.5 lakhs will only be permissible as a deduction for
Financial Year 2019-2020 and subsequent financial years
- A deduction that is claimed under Section 80EEA will not be allowed under any
other provision of the Income Tax Act for the same year or any other assessment
years
- The concerned taxpayer must be a first-time home buyer. It is essential to
note that the taxpayer should not own any other residential house properties
on the date of sanctioning the home loan
- The carpet area of a particular house property must not exceed 60 Sq. Mt. or
645 Sq. Ft. in metropolitan cities such as the following: Bengaluru, Chennai,
Delhi National Capital Region (however, it is limited to Delhi, Noida, Greater
Noida, Gurgaon, Ghaziabad, Faridabad), Hyderabad, Kolkata, Mumbai (the whole
of Mumbai Metropolitan Region)
- The carpet area of a particular house property must not exceed 90 Sq. Mt. or
968 Sq. Ft. in any other city or town.
- Deductions under Section 80EEA will be applicable to affordable real estate
projects that are sanctioned after 1st of April, 2019 but before 31st of March,
2022.
- Section 80EEA mandates the acquisition of a residential house. However, it
does not cover the construction of a residential house. One of the main conditions
of the Section is that the assessee should not own any residential house properties
on the date of sanctioning the home loan. However, if the taxpayer owns a residential
property after the loan for affordable housing was sanctioned, the taxpayer is
not to be disqualified. Therefore, if an assessee is fortunate enough to own
yet another property after the sanction of the loan, the conditions of the Section
stands satisfied.
Eligibility for Claiming Section 80EEA Deductions
The eligibility of this deduction depends on the following points -
- The deductions under this section can be claimed only by individual taxpayers
on properties purchased either singly or jointly
- There are a few types of assessees which are not allowed to claim this deduction
like Hindu Undivided Families (HUFs), companies, trusts, Association of Persons
(AOP) etc.
6. Tax benefits available by nature of property
6a. For the first residential property -
1. Any amount paid towards partial or full prepayment of home loan is also eligible
for tax benefit
6b. For the first self occupied property -
1. Annual interest component of up to Rs. 2 lakh (Rs. 3 lakh for senior citizens)
can be claimed as deduction against income under section 24
2. Additional deduction of Rs. 1.5 lakhs for interest on home loan availed for
purchase of Affordable houses of up to Rs. 45 lakh till March 2020
3. Available for purchase/ construction/ repair/ renewal/ reconstruction of a
residential house property
Benefit available only for self-occupied property
4. Deduction is available on an accrual basis and not on a payment basis. Hence,
deduction under Section 24 can be claimed on a yearly basis even if no payment
has been made during the year but interest has accrued
6c. For under construction property -
1. According to Section 24 of Income Tax Act, you can claim deduction against
the interest amount that you have paid on your residential property during the
pre-construction period.
2. Similar Deduction not available on principal repayment under Section 80C,
for payments done during pre-construction period
3. Total interest paid during the pre-construction period can be claimed as tax
deductible in five equal installments during five successive years from the year
in which construction is completed and property is handed over to you.
4. Tax deduction during construction period is not allowed for loan taken for
repair or renewal of a residential property.
6d. For second self occupied property
1. Total allowable deduction stands capped at Rs. 2 lakh per year for self-occupied
house.
2. A limit of Rs 2 lakh has been placed on amount of total interest that can
be claimed against income from let out or deemed to be let out property.
6e. For vacant property
1. As per Income Tax rule (Section 24), you will be required to account for deemed
rent on the property as taxable income. Deemed rent is notional rent based on
market rental values in the vicinity. Interest paid on loan taken to buy the
property can be set off from the taxable income.
2. So if you have two properties and none is rented out you can declare both
as self occupied but if you have three properties and none is rented out then
you will have to pay tax based on notional rent for the third property, this
can be done by declaring it as a rented property in EazeHR.
6f. For property which is part self occupied and part rented out
1. You will have to declare it as two houses in EazeHR - one as rented out and
one as self occupied and interest / principal paid should be split proportionately
based on the market value rent of the portion your are occupying
6g. Carrying forward of losses -
1. If your total of interest paid along with deductibles like expenditure on
repairs, taxes, standard deduction (30% on rented property) is higher than the
rental income / deemed rental income then the loss from house property can be
adjusted against income from salary, business and other income thus reducing
overall tax liability
2. In case total loss is more than 2 lakhs then the remaining amount of loss
beyond 2 lakhs can be carried forward for upto 8 years and adjusted against taxable
income for future years
6h. Joint home loan benefit
If the home loan that you have
taken is in joint names then you can save more tax as compared to when you have
taken home loan individually. Each applicant and the co-applicants (any number)
can avail tax benefit individually for a property in which they are joint owners.
Each applicant and co-applicant can separately claim a maximum tax deduction
of Rs. 1.50 lakh per annum for principal repayment under Section 80C and Rs.
2 lakh per annum for interest payment, under Section 24. They can also separately
claim
However, the total tax benefit by all joint owners cannot exceed the total principal
repayment and interest payment during the year.