Home Loan Tax Benefits Under Section 24

March 17, 2020

Home Loan Tax Benefits Under Section 24

If you have taken a Home Loan, there are multiple ways in which you can claim tax deductions on the repayment; tax deduction of up to Rs.2 lakh on interest paid on home loan under Section 24 of the Income Tax (IT) Act being a very important one.

While Home Loan makes it easier for an individual to purchase a property, the high cost of real estate in the country along with the loan interest makes it a costly affair. Thus, to encourage people to purchase residential property, the IT Act 1961 has various provisions to help borrowers claim tax deductions while repaying Home Loan. As the interest makes up for a major portion of the repayment amount, Section 24 of the IT Act enables a borrower to claim tax deductions on the same. Let us have a detailed look at Section 24 of Income Tax Act tax benefit.

Section 24 deduction on home purchase

Under Section 24, an individual who has taken a Home Loan for purchasing a residential property is eligible to claim a tax deduction on the interest component of the loan. If the borrower or his/her family resides at the purchased property, the maximum interest deduction can be up to Rs 2 lakh.

If the purchased property is let out on rent, there is no limit on the interest deduction. You are allowed to claim 100% of the interest you have paid in a year to your Home Loan lender.

Also, in case of joint Home Loans where both the individuals are also co-owners of the property, both the co-borrowers can claim interest deduction of up to Rs 2 lakh or 100% of the interest paid based on whether the property is self-occupied or let out on rent.

Section 24 deduction on under construction property

In case you have purchased a residential property which is still under construction, you can still claim tax deduction under Section 24. But the rules vary as compared to buying a fully constructed property.

The interest that you pay on the Home Loan during the period when your home is still under construction is known as pre-construction interest. Once the property construction is complete, you can claim deductions on this total pre-construction interest in 5 equal instalments.

Example:

For instance, if the total interest you pay during the pre-construction phase is Rs 5 lakh, you can claim Rs 1 lakh deduction in every financial year starting from the year in which the construction is complete.

But the maximum interest deduction limit under Section 24 would remain the same at Rs 2 lakh.

Important points to remember

While the tax exemption under Section 24 can help you save a significant amount of money in tax payments, there are a few conditions you should know about:

  • Tax deduction under Section 24 is only available once the property construction is complete or you have purchased a fully constructed residential property
  • The pre-construction interest deduction is only available after the construction is completed
  • The tax benefits claimed under Section 24 will be reversed if you sell the property within 5 years of the possession
  • House Rent Allowance (HRA) tax benefit is also available even if you have taken a Home Loan for property purchase but currently reside in a different house on rent
  • Apart from Section 24, there are other deductions available for Home Loan borrowers under Section 80C, Section 80EE and Section 80EEA.

Claim tax deduction under Section 24

If you are eligible for tax deduction under Section 24, you will need the Home Loan interest certificate from your lender for the total interest you have paid in a financial year. You will have to submit this letter to your employer to get your deduction adjusted in your Tax Deducted at Source (TDS).

In case you are unable to submit the certificate for some reason, the deductions can also be claimed by filing Income Tax Return (ITR). You will then be eligible for a tax refund from the IT department.

 

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