Tax Saving on Home Loan - Under Section 80C and Section 24

Tax benefits on Principal repayment Amount:

Tax benefit on Principal amount allows maximum deduction of Rs 1,50,000 and this deduction includes all other tax saving investments such as funds invested in PPF, equity linked savings scheme, Insurance premium, School fees, NSC, Tax saving FDs and other financial instruments. Moreover, these deductions are applicable only once the construction of the house is complete and not for the time period during which the house was under construction.

Caution:

All the deductions claimed under 80C are reversible if the property is sold within five years from the financial year in which property is taken. Deductions claimed during 5 years will be treated as income for the financial year in which you sold the property and you need to pay tax on the same.

The exemption under Section 80Cis allowed only under following conditions such as:

• This deduction is only for residential property not for commercial property.
• This deduction only available for self occupied property not for let out property.
• The value of property does not exceed Rs 40,00,000.
• The loan amount does not exceed Rs 25,00,000.
• The loan is taken for your first home i.e., you as a tax payer do not already own a residential property on that date.
• It is available only for purchase or under construction property and not for renovations and repairs.

Tax benefits on interest paid:

The sum of the amount paid by you towards interest on the principal loan amount is allowed for a tax deduction under Section 24. This is available for construction, repair, purchase and reconstruction of both residential and commercial property. Furthermore, this is allowed for both self occupied and let out property.

For construction or purchase of a new home, the maximum limit for tax deduction under the section is limited to Rs 2,00,000 and in case of let out property, there is no maximum limit the entire amount can be taken for tax benefit. If the property construction was not completed within 3 years from the end of the financial year in which the loan was issued and if a property is not self occupied, then there is no upper limit on this deduction.

The total amount of interest paid on home loan prior to possession of the house as it can be claimed as pre construction interest in 5 equal installments for the next five years precisely; from financial year in which possession is received.

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