Everyone knows that Tax Deduction is available on Home Loan. But, do you know that by taking a home loan, you can save up to Rs 5 lakh in tax every year. Taking a home loan is beneficial for those who have to pay a lot of taxes.
This facility is ending on 31st March this year.
So if you are thinking of taking a home loan, then know how it can help you save tax. Yes, you have to note that the facility of claiming deduction on interest under Section 80EEA of the Income Tax Act, 1961 will be available only on loans taken up to March 31 this year.
Deduction allowed on principal amount under 80C
First of all, you should know about the deduction available under Section 80C of the Income Tax Act, 1961. This section allows you to claim deduction on the principal portion of the home loan. But, its limit is Rs 1.5 lakh annually. Secondly, many other things also come under this section. Like- Tax Saving Scheme of Mutual Funds, PPF, Life Insurance Premium, Tuition Fee etc. Hence, there is not much scope left for claiming deduction on the principal of the home loan.
Deduction on interest under section 24
Deduction on home loan interest is allowed under Section 24 of the Income Tax Act, 1961. For this, a limit of Rs 2 lakh per annum is fixed for self-occupied property. If the property is let out on rent, you can claim the full interest on the home loan as deduction.
Additional deduction of 1.5 lakh under section 80EEA
Additional deduction of Rs 1.5 lakh is allowed under section 80EEA. This deduction is available on the interest of the home loan. There are two conditions fixed for availing this deduction. First, the home loan should be taken from April 1, 2019 to March 31, 2022, and second, the stamp duty value of the property is Rs 45 lakh or less.
Meaning of self occupied property
Now it is important for you to know what is meant by Self Occupied Property. A property is said to be self-occupied when it is used by the owner or his family for his own living. This property or any part thereof has never been let out during the year. Income tax law allows two properties to be claimed as self-occupied properties.
Tax exemption on under-construction property
It is also important for you to know that you cannot claim deduction on the principal of the home loan if you have taken a loan to buy an under-construction property. You can claim deduction on the principal only after the house is ready.
Deduction on interest is also not allowed on the home loan of under-construction property. However, its rules are liberal in comparison to the rules for claiming principal deduction. Once the construction is complete, you can claim deduction on the interest paid during the pre-construction period in five annual installments. Under section 24, the deduction limit for this is Rs 2 lakh per annum.
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