Buying a house on Home loan comes with several tax benefits that significantly reduce your tax outgo. It needs to be well-planned and then executed so as to make the most of it. However, with the falling interest regime during the period from 1999 to 2006 and the introduction of tax benefits on the interest paid on housing loan and repayment of principal amount, taking a home loan is not only an easy option but also a favored option.
Deduction for interest paid on housing loan: (Section 24)
EMI of the housing loan consists of two components namely interest and principal. You can claim the interest component as a deduction from your total income up to a maximum of Rs. 2 lakhs under the section 24. For AY 2016-17, the maximum deduction for interest paid on self-occupied house property is Rs. 2 lakhs. However, for let out property, there is no upper limit for claiming interest.
But you must have taken loan for the construction/purchase of the new house and the construction of the house should be completed within five years from the end of the FY in which the loan was taken.
Note: In case, a property has not been self-occupied by the owner by reason of the fact owing to his employment, business or profession carried on at any other place, he has to live at that other place not belonging to him; then the amount of tax deduction allowed under Section 24 shall be Rs. 2 Lakhs only.
Under section 80EE, the additional deduction is allowed for maximum up to Rs. 50,000 for first-time buyers. However, the amount of loan taken must be Rs. 35 lakhs or less and the value of the property must not exceed Rs. 50 lakhs. The loan must have been sanctioned between 1st April 2006 and 31st March 2017 and at that time an individual must not own any other house.
This deduction of Rs. 50,000 is over and above the deduction of Rs. 2 lakhs U/S 24 and Rs. 1, 50,000 U/S 80C.
Under the section 80C, you can claim a deduction a deduction up to the maximum of Rs. 1, 50,000. This tax deduction is the total of the deduction allowed U/S 80C and includes amount invested in PPF, Equity Oriented Mutual Funds, Tax Savings Fixed Deposits, National Savings Certificate, Senior Citizens Saving Scheme, etc. The amount paid as registration charges and stamp duty is also allowed as a deduction under this section, even if the individual has not taken any loan. But such charges can be claimed only in the year in which they are paid.
However, to claim this deduction, an assessee must not sell the house property within five years of possession or; the deduction claimed ahead will be added back to his income in the Year of sale. Also, this section allows the tax benefit only after the construction is complete and the completion certificate is awarded.
The above tax deductions are per person & not per property. Thus, if you have purchased property jointly or taken a joint home loan, each person paying the amount would be eligible to claim full deduction separately. You can claim tax benefit under above section, even if you are living in a rented premise and are getting tax benefit of HRA allowance.