Ways to Avail Maximum Tax Benefit on Home Loan in 2022

Ways to Avail Maximum Tax Benefit on Home Loan in 2022

Deepshikha | Apr 2, 2022 |

Ways to Avail Maximum Tax Benefit on Home Loan in 2022

Ways to Avail Maximum Tax Benefit on Home Loan in 2022

Section 80C: Tax benefit on Home Loan (Principal Amount)

Section 80C of the Income Tax Act allows an individual or a HUF to deduct the amount paid as Repayment of Principal Amount of Home Loan. Section 80C allows for a maximum tax deduction of Rs. 1,50,000.

This tax deduction includes amounts invested in PPF Accounts, Tax Saving Fixed Deposits, Equity Oriented Mutual Funds, National Savings Certificates, Senior Citizens Saving Schemes, and other deductions authorized under Section 80C.

This Section 80C tax deduction is available on a payment basis, regardless of the year in which the payment is made. Even if the Assessee has not accepted a loan, the amount paid as Stamp Duty and Registration Fee is recognized as a tax deduction under Section 80C.

However, the tax benefit of a home loan under this provision for repayment of the principal portion of the loan is only available after the construction is completed and a completion certificate is issued. The repayment of principal for the years that the property was under construction would not be allowed as a deduction under this clause.

Furthermore, if you are considering purchasing an under-construction house because it is less expensive than a fully built property, you should be aware that under-construction properties are subject to GST. Construction-completed properties, on the other hand, are exempt from GST.

Section 80C(5) also specifies that if the assessee transfers the house property for which he has claimed a tax deduction under Section 80C before the end of the Financial Year in which he obtains possession, no deduction or tax benefit on the Home Loan would be permitted under Section 80C. The total amount of tax deductions already claimed in past years will be judged to constitute the Assessee’s income for the year in which the property is sold, and the Assessee will be responsible to pay tax on that income.

Tax benefit on Home Loan (Interest Amount)

Tax benefits on home loans for interest payments can be claimed as a deduction under Section 24 and the newly included section 80EEA (Amended by Budget 2020).

Section 24: Income Tax Benefit on Interest on Loan for Purchase/Construction of Real Estate

The deduction for interest paid on a home loan is allowed under Section 24 of the Income Tax Act. The amount of interest paid on a loan made for purchase, construction, repair, renewal, or reconstruction of property is deducted from the income from house property under Section 24.

The maximum tax deduction for a self-occupied property allowed under Section 24 is limited to Rs. 2 lakhs (increased in Budget 2014 from 1.5 Lakhs to Rs. 2 Lakhs).

If a property is not self-occupied by the owner because of his occupation, business, or profession carried on at another location, he is required to reside at that other location not belonging to him, the amount of tax deduction permitted under Section 24 is only Rs. 2 lakhs.

It’s also worth noting that the Interest on Loan tax deduction under Section 24 is deductible on a payment basis, rather than an accrual basis. As a result, unlike Section 80C, which allows for deduction only on a payment basis, deductions under Section 24 can be claimed every year even if no payment has been received throughout the year.

Furthermore, if the property is not purchased or erected within 5 years of the end of the financial year in which the loan was obtained, the interest benefit will be cut from 2 lakhs to only Rs 30 thousand. (From FY 2016-17 forward, the limit was increased from 3 to 5 years.)

Deduction for Non-Self Occupied Property {Budget 2017 Update}

In the case of a non-self-occupied home, the interest paid is subtracted from the rent paid to get at the House Property Income. The interest paid may exceed the rent earned in some situations, resulting in a loss from house property. This loss can be offset by any other source of income.

The Finance Act 2017, which went into effect on the 1st of February 2017, imposed a limit on the amount of loss that can be written off against other sources of income under the heading House Property. From the 2017-18 financial year forward, losses of up to Rs. 2 lakhs can be written off against income from other headings. The amount which is not set off shall be carried forward to future years.

Thus, for self-occupied property, the maximum interest deduction is Rs. 2 lakhs, while for non-self-occupied property, the loss under head home property should not exceed Rs. 2 lakhs (i.e. Rent Received – Standard Deduction – Property Taxes – Interest Rapid should not exceed Rs. 2 lakhs). In the event of a self-occupied property, interest over Rs. 2 lakhs would lapse and cannot be claimed as a deduction, however in the case of a non-self-occupied property, Loss from House Property over Rs. 2 lakhs will be carried forward to the following year and permitted to be claimed.

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