Under Section 24, Section 80C, and Section 80EE of the Income Tax Act, those repaying a home loan are entitled to tax deductions on the principal amount as well as the interest, according to certain pre-conditions.
Tax benefits can only be claimed on loans taken regarding purchase or construction of a residential property. However, in cases where a property is jointly owned, it’s mandatory to be both a co-owner and co-borrower to enjoy the tax deductions offered by the government.
You are only eligible for tax benefits post the possession of your house. While there’s no provision to avail benefits on the principal, the interest payments before possession can be claimed in five equal instalments as deductions under Section 24. To make the most of your tax benefits, it’s best to get possession within five years. In case that doesn’t happen, the tax benefit is capped at Rs 30,000 (instead of Rs 2 lakhs) per financial year.
Deduction of stamp duty and registration fees
Further, Section 80C of the Income Tax Act allows the stamp duty and registration fees to be considered for deduction while the same is applicable for home loan processing fee under Section 24.
Tax benefit can also be claimed on the interest paid through the money borrowed from a friend or a relative, once you provide a certificate from the lending party stating the interest amount paid during the year. However, the repayment of the principal is only eligible for tax benefits under Section 80C when the money’s borrowed from one of the sources mentioned in the same section of the Income Tax Act.
Currently, the government hasn’t fixed any limitation on the number of residential properties on which you can avail a tax benefit after taking a loan. However, there’s a cap on the combined tax benefits that can be claimed during the repayment of multiple loans. While Rs 1.5 lakhs can be claimed under Section 80C, when it comes to principal repayment for multiple properties, the rules for interest repayment vary. Any property purchased for self-occupation is eligible for a tax benefit of Rs 2 lakhs. When it comes to properties purchased for the purpose of earning rental income, the entire amount repaid as interest can be claimed as a deduction.
There’s no joy bigger than the joy of being able to save your tax in bits and pieces, especially when you are already splurging your hard earned money on a new home. It seems like the timing is just about right to make the most of all the tax saving benefits the government offers home loan borrowers.