The tax benefits available on the home loan principal and interest repayment under Sections 80C and 24, respectively, are known to most home buyers.
The tax benefits available on the home loan principal and interest repayment under Sections 80C and 24, respectively, of the Income Tax Act are known to most home buyers. However, home buyers often remain unaware about a few less-known tax-related facts and benefits while availing a home loan. Let me explain some of these points to prevent you from missing out on any of these while repaying your home loan.
Interest in pre-construction years
It’s common for home buyers to avail home loan for purchasing an under construction house whose possession would only be received at a later date, after a few years. In such scenarios, since one starts repaying the home loan even before the possession is received, borrowers need to be aware of the tax benefits available on the home loan’s interest repayment during the pre-construction period.
The interest repaid during this period can be claimed as tax deduction for five years (i.e., in five equal instalments), starting from the year of possession. However, remember that the maximum amount one can claim is capped at `2 lakh per year.
Tax benefit reversal
Tax deduction claimed on principal repayment of home loan (under Section 80C) would be reversed, i.e., treated as your income and taxed according to your tax bracket, in case the tax assessee transfers the property within five years from the end of financial year in which its possession was obtained. Home loan borrowers must, therefore, make sure that they do not sell the property before five years, to continue availing tax benefits under Section 80C.
For instance, if you bought a flat in August 2013 (falling in financial year 2013-14) and claimed a total of `3 lakh as tax deduction under Section 80C over the next three years and sold this house in June 2017, this `3 lakh would be treated as your income in the financial year 2017-18, and would be taxable as per your income tax slab. Unlike principal component, interest component of EMIs paid would not be reversed on such sale within five years, i.e., till the end of financial year 2017-18.
Co-owners can avail tax breaks
To avail separate deductions on joint home loan, borrowers need to make sure that they are both the co-borrowers as well as co-owners of the house property. This would enable them to claim separate tax benefit, amounting to a maximum of `1.5 lakh on principal repayment and `2 lakh on interest repayment per year.
Keep in mind that joint borrowers would be able to claim deduction on interest repayment as per the ratio of their ownership of property. So, in case one of the co-borrowers has been solely paying the EMIs, he/she is entitled to claim the entire interest as tax deduction, for that financial year.
Stamp duty fees tax deductable
Stamp duty, registration charges and other expenses which are directly related to transfer of house property to the assessee are eligible to be claimed as tax deduction under Section 80C. However, remember that the amount to be claimed as deduction should remain within the overall maximum limit of `1.5 lakh per year under Section 80C. Moreover, borrowers must note that such expenses can only be claimed in the same year in which these expenses have been incurred.
(By Ratan Chaudhary. The writer is associate director and business head, home loans, Paisabazaar.com)