How to get the Maximum Home Loan Tax Credit Benefit in India in 2022

 

Section 80C Tax benefit for Home Loans (Principal Anmount)

Section 80C(impact Tax Act) allows an individual/ HUF to deduct the principal amount of a home loan as a tax deduction. Section 80C gives you a maximum tax deduction of Rs. 1,50,000.

This tax deduction represents the total amount allowed under Section80C. It includes any money invested in PPF Accounts or Tax Saving Fixed Deposits, Equity Oriented Mutual Fonds, National Savings Certificates and Senior Citizens Savings Schemes.

No matter what year payment was made, Section 80C allows for tax deductions on a payment basis. The tax deduction for Section 80C also allows the assessee to deduct the Stamp Fee and Registration Fee even though they have not taken a Loan.

However, this section of the loan for principal repayment is tax-free. It is allowed only after completion of construction and award of completion certificate. The repayment of principal would not be subject to deduction under this section during the construction period.

In case you want to buy an under-construction home because its price is lower than that of a fully-finished property, you must also be aware that VAT is also charged to property. On properties that have had their construction completed, GST is not charged.

House Property should be kept in good condition for at least 5 years

Section80C(5) also provides that if an assessee moves the house asset on which he had claimed tax deduction Section80C, before the expiry time of 5 year from the Financial Year in the possession has been acquired by him then no deduction nor tax benefit for Home Loan shall be permitted under Section 80C. The Assessee's income for the year in which the property was sold shall be considered the total amount of any tax deduction claimed for prior years.

Tax Benefit for Home Loan (Interest amount)

The Tax Benefit on Home Loan Interest Payments can be claimed in the form of a Deduction under section 24 and also under the newly inserted section 880EEA (Amended by Budget2020).

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

Tax Benefit on Home Loans for the payment of Interest is allowed under Section 24, Income Tax Act. Section 24 stipulates that income from House Property shall be reduced if Interest has been paid on Loan. This applies to loans taken to repair/ renovate/ renew/ purchase property.

A maximum limit of Rs. 24 allows for the maximum tax deduction on self-occupied properties. 2 Lakhs (increased in Budget 2014. From 1.5 Lakhs. to Rs. 2 Lakhs).

Please Note that if a property isn't self-occupied because of his employment, trade, or profession, he needs to reside at the other location. If this happens, the Rs. 2 Lakhs.

It is important to mention that the interest deduction under Section 24 is tax deductible on a payable basis. accrual. Section 24 provides an opportunity to deduct on a year-to-year basis even if you have not made any payments during the year. Section 80C allows for only payment basis deductions.

In addition, the interest rate in this instance would drop from 2 Lakhs (Rs 30 thousand) to 5 years after the date the loan was taken. (The LIMIT was increased from 3 years up to 5 year starting from FY 2016-17).

Deductions for Non-Self Occupied Real Property Budget 2017 Updat

Non-self-occupied property has the interest paid reduced by the Rent paid in order to get the Income From House Property. In some cases, the Interest paid might be greater than the Rent received. In this case, Loss from House Property may occur. This loss can be offset against Income from any other person.

The Finance Act 2017, announced 1 February 2017, has placed restrictions on the maximum amount that can be set off from other heads income. Beginning in Financial Year 2017-18, Losses of Rs. Allowable to be set-off with Incomes from other heads is 2 Lakhs. The amount that isn't set-off will be carried forward to subsequent years.

These new provisions in the Income Tax Act are well explained in this link Income Tax Tax Treatment of Loss From House Property.

Self Occupied Property has a maximum interest deduction of Rs. 2 Lakhs. For property not self-occupied, the loss under headhouse property should not exceed Rs. 2 Lakhs (i.e. Rent Received, Std Deduction – Property Taxes. - The interest rate should not exceed Rs. 2 Lakhs). The interest in self-occupied property above Rs. 2 Lakhs can be claimed as a deduction, but non-self-occupied property is subject to the loss of house property exceeding Rs. 2 Lakhs will get carried forward into the next and permitted to be claimed within the next year.

Income Tax Treatment for Pre-Construction Interest

In many cases, the amount used to buy a property is paid in full before the construction is complete. Some homebuyers purchase properties on a loan before completion of construction. They then begin paying EMIs at the Bank.

Section 24 of the Code specifically states that you cannot deduct tax to pay interest before the construction is completed. In such cases,

1. If the loan is used for repair/renewal/ reconstruction, no tax deduction will be allowed for interest that has been paid before completion
2. If the loan is for Purchase/ Construction: The interest paid before completion should be added. The total amount of the loan shall be deducted as a tax deduction in five equal installments for five consecutive Financial Years beginning with the year that the construction was completed.

For example, Mr. A in New Delhi purchased a house and took out a loan for Rs. 10,00,000.00 from the Bank at 10% per annum. Construction was completed on April 2011.

Section 24(i) of the Income Tax Act provides that Interest payments can be deducted from income tax starting in financial years 2011-12. However, interest on loans made before the construction was completed (i.e. Rs. 2,00,000.00) would be allowed as tax deduction during the next 5 Financial Years @ 40,000p.a. All tax deductions will be allowed starting in Financial Year 2011. (Simplified amounts are used in this example for simplicity.

Important Points:-

1. Tax Deduction does not allow interest to be paid on an unpaid amount (Shew Kissan Bhatter, v. CIT (1973), ITR 61(SC).
2. This tax deduction is available only if you complete the construction within 5 years of the fiscal year when the capital is borrowed.
3. The taxpayer can't claim any deductions from the Commission Paid for Arranging the Loan
4. Loss from Income from House Property would occur if the taxpayer isn't earning income from house properties but is paying municipal taxes and int on home loans. The loss that results under Head Income is House Property can be offset with income from various heads of the same Financial Years.
5. If the loss cannot offset income from other sources during the same financial period, the loss will be carried forward into the future and can be offset against income arising form House Property in the following 8 financial years.
6. Tax Benefits from Interest on a Home Loan are only available to the Borrower who acquired or constructed the property. It is not available to the Successor.