Housing Loan & Income tax benefit

Interest on Housing Loan – Section 24(b):

Interest on the loan taken can be claimed as a deduction from income from house property under section 24(b), where the property has been acquired, constructed, repaired, renewed or reconstructed with such borrowed capital.

In the case of self-occupied house property, where the property referred to in the first proviso is acquired or constructed with capital borrowed on or after the 1st day of April, 1999 and such acquisition or construction is completed within three years from the end of the financial year in which capital was borrowed, the amount of deduction under this clause shall not exceed two lakh rupees.

Conditions:

If the following conditions are not followed then, the above limit of Rs 2,00,000 for Self Occupied House Property shall be reduced to Rs. 30,000:

i. Loan borrowed before 01-04-1999 for any purpose related to house property;

ii. Loan borrowed after 01-04-1999 for any purpose other than construction or acquisition;

iii. If the construction/acquisition is not completed within 5 years from the end of the financial year in which capital was borrowed.

Interest on borrowed capital is allowable as deduction on accrual basis (even if account books are kept on cash basis), if the capital is borrowed for the purpose of purchase, construction,repair, renewal or reconstruction of the house property.

If an assessee takes a fresh loan to pay back the earlier loan, the interest on the fresh loan would be deductible.

Interest on borrowing can be claimed as a deduction only by the person who has acquired or constructed the property with borrowed fund. It is not available to the successor of the property (if the successor has not utilized the borrowed funds for acquisition, etc). In other words, the relationship of borrower and lender must come into existence before it can be said that any amount or any other money is borrowed for the purpose of construction, acquisition, etc., of house property by one person from another and there must be real transaction of borrowing and lending in order to amount to any borrowing.

In the case of interest on loan, for the period prior to the previous year in which the property has been acquired or constructed shall be deducted in 5 equal installments starting from the year in which the property has been acquired / constructed.

Interest on Housing Loan – Section 80 EE:

In the Finance Act, 2016 has introduced deduction of interest payable on housing loan for first time home buyers taken from any financial institution over and above the deduction allowed under section 24 b. Section 80 EE has been amended for this purpose.

The deduction is allowed only to individuals, maximum limit of deduction is Rs. 50,000 and deduction is available from financial year 2016-17 onwards. Such deduction is allowed till such loan is repayed.

Conditions:

Deduction under this section is allowed only if following conditions are satisfied –

1. the loan has been sanctioned by the financial institution between 1st April 2016 to 31st March 2017.

2. The Assessee does not own any House Property on the date of sanction of Loan

3. the value of residential house property does not exceed Rs. 50 lakhs.

4. the amount of loan sanctioned for acquisition of the residential house property does not exceed Rs. 35 lakhs.

5. This is one time deduction.

The deduction is allowed over and above deduction under section 24 b.

This section would benefit very few assesses because of the conditions prescribed. Those first time house buyers who can fulfill such conditions, can benefit from this as not only do they get a deduction up to Rs. 2,00,000 for interest paid on housing loan but also an additional deduction of Rs. 50,000/- from their gross total income as a result of introduction of this section.

The above tax deductions are per person and not per Property. So in case the property is purchased jointly and have taken a joint home loan, each person repaying the amount would be eligible to claim whole deduction separately.

Principal Repayment – Section 80 C

The following amounts paid shall be allowed as a deduction in the total income subject to a limit of Rs. 150,000/-.

(a)  any installment or part payment of the amount due under any self-financing or other scheme of any development authority, housing board;

(b)  any installment or part payment of the amount due to any company or co-operative society of which the assessee is a shareholder or member towards the cost of the house property allotted to him;

(c)  repayment of the amount borrowed from the Central Government or any State Government, any bank, including a co-operative bank, the Life Insurance Corporation, the National Housing Bank;

(d)   stamp duty, registration fee and other expenses for the purpose of transfer of such house property to the assessee.

The cost of any addition or alteration to, or renovation or repair of the house property which is carried out after the issue of the completion certificate by the competent authority shall not be allowed as a deduction under section 80 C.

Deduction under section 80 C is available based on actual payment only.

You will need to show the statement provided by the lender showing the repayment for the year as well as the interest & principal components of the same.

In case you sell the house acquired with home loan, within five years from the end of the year in which possession of the house was taken, all the deduction allowed for Principal repayment in earlier years shall be withdrawn. This shall be treated as income of the year in which this property is sold. Moreover, no deduction under Section 80 C shall be allowed for principal repayment made during the year.

Co Applicant for Housing Loan:

In the case of joint ownership of the property, the income tax benefits are applicable in proportion to the ownership structure. For example, if the ownership in a property is 70:30, a loan of say Rs 60 lakhs will be split as Rs 42 lakhs and Rs 18 lakhs respectively and the same ratio will be applicable while calculating tax benefits on interest / principal repaid on this loan.

Therefore, it is advisable for joint owners to procure an ownership sharing agreement stating the ownership proportion on a stamp paper as legal proof of the ownership.

The joint owners of the property can claim income tax benefits individually. The housing loan benefits that fall under Section 80 C, 80 EE  and Section 24 of Income Tax Act make each borrower eligible for a maximum deduction of Rs. 1.5 lakh, Rs. 50,000 and Rs. 2 lakhs (even higher  in the case of let out property) associated to principal repayment and interest payable on the home loan respectively.

The above tax deductions are per person and not per Property. So in case the property is purchased jointly and have taken a joint home loan, each person repaying the amount would be eligible to claim whole deduction separately.

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