Author: Ravi Singhal, Vice Chairman, GCL Securities Limited
Many first-time home buyers often remain confused about the Income Tax benefits that they can avail on home loan after the purchase of their first residential property.
If you are buying home first time, you are entitled to get Income Tax benefits on home loan under three sections- Section 80C, Section 24 and Section 80EEA of Income Tax Act. These sections of Income Tax Act let you avail home loan benefit of Rs. 5 lakh annually.
Let’s understand with this detailed chart of Income Tax sections: –
|Maximum Tax Benefits(Rs)
|Tax saving component
|Home Loan Principal and Stamp Duty
|Property should not be sold within 5 years of possession.
|Home loan Interest
|– Income Tax assessee or any family member should be living in that house
– Full interest can be claimed if house is on rent.
|Home Loan Interest
|– Stamp duty value of property should be up to Rs 45Lakhs
– Loan sanction date should be between 1st Apr 2019 to 31st Mar 2022
– Assesse should not own any residential property till sanction of loan.
– Should not be claiming any amount under income tax section 80EE.
– Loan should be borrowed from Financial Institution only.
Now, let’s consider a scenario that you have purchased a property in April 2021, property value is Rs 50 Lakhs and you have taken 80% loan i.e. Rs 40 lakhs on it from a financial institution (Bank or NBFC) at interest rate of 7% for 20 years. Now your monthly EMI would be around Rs 31,000 and you have to pay a total amount of Rs 3,72,000 in first year, out of which Rs 2.77 lakhs is interest component payment and Rs 95,000 is principal component amount.
Suppose your annual earning is Rs. 5 Lakhs annually, in that case you can claim Rs 95,000 (principal payment) deduction under 80C (remaining Rs 55000 of 80C can be claimed from stamp duty payment, valid for only first year), Rs 2,00,000 under section 24 and remaining Rs 77,000 interest amount under Section 80EEA.
So, first year you can take tax deduction benefits of Rs 4.27 lakhs. Moreover, principal and interest paid components against home loan EMIs change every year, so it is suggested that check it in advance before you do your tax planning.
Tax benefits for second time home owner
If you already own a property and wish to buy another then tax benefits under 80EEA cannot be claimed. In the above example now you can claim Rs 95,000 under 80C (plus 55000 against stamp duty paid in first year) and 2,00,000 Rs. under Section 24. However, if the purpose of home is investment and you want to lease it on rent, in that case you can claim full amount of interest component in section 24, which is Rs 2.77 lakhs in above case.
If woman member of the family invests in house
As per income tax laws, there are no specific benefits in case a woman invests in house. She can claim all the above mentioned benefits under income tax laws similar to man.
However, some state governments have given 1%-2% benefit of stamp duty if woman is the owner of house. Like in Rajasthan, if you buy a house of amount Rs 40 Lakhs then in general case the stamp duty (including other charges) is 8.8% which is Rs 3,52,000, but if any a female member of the family buys this house then she has to pay 7.5% stamp duty, which is Rs 3,00,000. So, there is one-time saving of Rs 52,000 if a woman buys the same house.
Tax benefits for husband-wife or joint purchase
If both husband and wife purchase house jointly, the income tax benefit rules remain the same in that case, however, both husband and wife can claim tax benefits in their individual files. Maximum deductions benefits cannot cross the actual amount paid, i.e. both husband and wife cannot take benefit of same payment. For example, the interest component is Rs 2.77 Lakhs and husband has taken tax deduction benefit of Rs 2 Lakhs under Section 24, then wife can only take benefit of Rs 77,000 under section 24 and benefit taken against interest component can never cross Rs 2.77 lakhs, which is the actual paid amount.
Similarly, Rs 95,000 is paid against principal payment, so if they want to take benefit under Section 80C so either husband or wife can take full benefit of Rs 95,000, if they want, they can split the amount as per their tax planning, but full amount benefit cannot be taken in both accounts.
This post is authored by Ravi Singhal, Vice Chairman, GCL Securities Limited