Tax Benefits can be divided as follows in case of home loans
1. REPAYMENT OF INTEREST AMOUNT
Homeowners can claim deduction of up to Rs.2 lakhs (Rs. 1,50,000 if you are filing returns for FY 2013-14) on their home loan interest if the owner or his family reside in the house property. The same treatment applies when the house is vacant. If you have rented out the property, the entire interest on the home loan is allowed as a deduction.
- When deduction is restricted to Rs.30,000?
If the loan has been taken for reconstruction, repairs or renewal, only Rs.30,000 shall be allowed as deduction.
- How do I claim tax deduction on a loan taken before the construction of the property is complete?
Deduction on home loan interest cannot be claimed when the house is under construction. It can be claimed only after the construction is finished. The period from borrowing money until construction of the house is completed is called pre-construction period.
Interest paid during this time can be claimed as tax deduction in five equal installments starting from the year in which the construction of the property is completed.
Note: The deduction can only be claimed starting in the financial year in which the construction of the property is completed.
- Conditions to claim this deduction
The home loan must be for purchase and construction of a new property.
The loan must be taken on or after 1 April, 1999.
The purchase or construction must be completed within 3 years from the end of the financial year in which the loan was taken.
2. REPAYMENT OF PRINCIPAL AMOUNT
The deduction to claim principal repayment is available for up to Rs. 1,50,000 within the overall limit of Section 80C in FY 2014-15 and onwards (Rs. 1,00,000 if you are filing returns for last financial year). Check the principal repayment amount with your lender or look at your loan installment details.
- Conditions to claim this deduction
To qualify for this deduction:
The home loan must be for purchase or construction of a new house property.
The property must not be sold in five years from the time you took possession. Doing so will add back the deduction to your income again in the year you sell.
- Stamp duty and registration charges
Stamp duty and registration charges and other expenses related directly to the transfer are also allowed as a deduction under Section 80C, subject to a maximum deduction amount of Rs.1,50,000. Claim these expenses in the same year you make the payment on them.
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