Interest on Housing Loan : Tax Benefits & Deductions

CA Mayur Mamtora |

Buying a house is a dream for each one of us. It is one of the costliest asset in our portfolio too. Hence most of us cannot afford to buy it without opting for a Housing Loan. Even governments encourage taxpayers to buy a house by providing multiple tax benefits. In this article we will study some of the important tax benefits of a home loan that you should not forget to claim while filing your ITR.

CONCENT OF SOP-LOP :

Before we deep dive into the intricacies, we need to understand two concepts regarding House Property taxation viz. Self-Occupied Property & Let-Out Property

  1. SOP (Self-Occupied Property) means 

    • a property used for owner’s own residential purpose or

    • a property that cannot be occupied owing to employment/business at other place and the owner has to reside at that other place in a rented premise.

  2. LOP (Let-Out Property) simply means a rented property.
An assessee can claim maximum two house properties as his SOP for any financial year.

TAX BENEFIT / DEDUCTION :

A maximum deduction of Rs. 2,00,000/- will be available against interest payable on a housing loan, subject to following conditions:
    • Loan taken on or after 01-04-1999

    • Loan taken for the purpose of:
      • Purchase of a House; or
      • Construction of a House 

    • Construction of House should be completed within 5 years from the end of financial year in which loan is taken.
In case of a let-out property, there is no limit for claiming deduction of interest on a housing loan. Hence interest on housing loan paid w.r.t a let-out property is fully tax deductible.

In case if a housing loan was taken for repair/renovation the maximum deduction will be capped to Rs. 30,000/- only.

PRE-CONTRUCTION INTEREST PAID ON A HOME LOAN :

Eligibility to claim deduction of interest on home loan begins after completion of construction. But you need not worry if you have taken home loan for an under construction property. Pre Construction period interest on home loan is allowed as a deduction in 5 equal annual installments starting from the year in which construction is completed. However the aggregate deduction (pre construction interest + post construction interest) will be capped to maximum limit of Rs. 2,00,000/-

OTHER IMPORTANT POINTS :
  • Assessee needs to obtain a certificate from his borrower with respect to the amount of interest paid during the financial year in respect of his housing loan for claiming the said deduction

  • It is to also note that EMI of a home loan has two components viz. Interest & Principal. Interest on home loan is deductible under section 24(b) and the assessee is also eligible to claim deduction of principal under section 80C (within overall limit of Rs. 1,50,000/- u/s 80C)

  • Interest payable on a loan taken to repay previous Housing Loan is also tax deductible.

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