You How to avail tax rebate on home loans
Remember the Income Tax Act 1961 provision when you apply for a home loan. If we buy a home/flat, build a house or renovate a property, we can get a rebate under sections 80C and 24 of the Income Tax Act 1961.
What happens when we repay a loan with EMI? The EMI has two parts: the principal and the interest.
Interest: A person who takes a home loan to buy residential property (not a plot) is eligible for tax-exempt under Section 24 of the Income Tax Act.
1. The limit for a person who occupies his home is two lakhs.
2. If he rents it, the income from the property head must not exceed 200,000 after paying interest on the loan.
A. Self-occupied Property
This condition means that the owner occupies the property. This results in negative income from the house. According to the Income Tax Act Section 24, a maximum deduction of 2,00,000.00 is allowed for amounts borrowed after 31.3.1999 to invest in self-occupied residential property. This deduction would result in a net loss of up to 2,00,000. It would also be possible to adjust or offset any income from the business, salary, and other sources.
You are eligible for income deduction under Section 24 @ 2,00,000. Per person, for interest on a home loan. For the repayment of principal, you can claim a deduction of up to 1,50,000 in Section 80C of your income tax. The amount you can deduct under Section 24 would be 30,000 if you took the loan for the renovation or reconstruction of your house.
The bank will deduct a total of 4lakh of interest on a loan for the self-occupied property after marriage. This is to the maximum amount of 2,00,000.
Interest amount and co-ownership
The lender can only deduct the entire interest amount of 45,000 if you and your spouse buy the property together. If your spouse is co-owner of the property and pays the bank loan, the loan repayment can be deducted again within the limit of 1.5 million as allowed under Section 80C. There are some conditions that you can take deductions for both principal and interest on a home loan. In the case of self-occupied properties, the interest deduction is limited to 25,000 per year. However, if the property is not constructed or acquired within three years, the benefit is reduced to 25,000 to 30,000.
How to benefit
These days, possession delays are common, which buyers must be aware of. Friends, to benefit from this important deduction under the income tax law, you must not have more than one self-occupied residential home. According to the Income Tax Act, only one property can be exempt completely from tax on its nominal rental value. If you own two houses, only use one of them for self-occupation. The owner can let out the other. This benefit is not available to commercial or industrial properties
B. Property on Rent
The income from the property must not exceed 200,000 after the interest on the loan; if you own more than one property on which you have taken a home loan — One being for personal use and the other on Rent.
This situation allows you to consider one house self-occupied and the other on Rent. It is regardless of whether it is actually on Rent or not.
For example:-
1. HOUSE NUM. 1: The interest on a home loan is 160000, based on a monthly rent of 20000.
i. It can generate rental income of up to 240000
ii. Less: Std. Deduction (30%) — 72000
iii. Net Income — 168000
iv. less interest on loan -160000
Net taxable — ` 8000
2. HOUSE NUM 2: Interest for Self-Occupied Home Loans – 240000
Total House 1 and 2
240000 -8000= – 232000
The maximum allowed deduction per year is 2.00 lakh. Therefore, a deduction of 2.00 lakh must be in the current year. You can carry forward the remaining 32000 to next years (up to 8 years).
C. Supposed/Deemed tax on Rent
Let’s say you own a house where you live and you buy another house. It is now vacant. The purchase of these houses was with a loan.
You can apply for the first house in which you live as a self-occupied house. “On rent” will be the status of the second vacant house.
House/Flat under Construction
Remember that you must complete the construction of your residential home within three years after purchasing your property or if the flat is purchased from a builder. These two conditions will ensure that residential property investment is tax-free for investors.
Deduction of interest starts from the year of completion. Any interest paid before the completion of construction can be deducted in five equal annual payments beginning with the year of completion. This claim is subject to the limit of 25,000 for self-occupied properties and 30,000 in case of an earlier interest payment. A deduction of up to l.5 lakh per annum on principal repayments is also allowed by Section 80C.
This benefit is only available if the property ownership has been for at least five years after the possession date. The disposition of the property within five years will reverse this benefit.
