catanuja-gupta-save-home-loan-tax-exemption-deduction

Five Smart Strategies to claim Home Loan Tax exemption

Taking Housing loans is a very common practice when you buy your house. Housing loans are not only to fund 70-80% of your house value but help you in reducing your tax liability too. Principal repayment, interest paid, along Pre-occupation interest are allowed as a deduction with certain limits & conditions but some taxpayers out of ignorance claim these deductions without fulfilling the requirements and receive Income Tax notices to pay extra tax, interest, and penalties for escaping tax liability.

So, why does this happen?

When your friend is filing tax returns on your behalf and does not have actual documents of Interest Certificate and Housing Loan Statement.

If you are filing your tax returns after going through some random YouTube videos or after going through some content that is not up-to-date, may also be a reason for such wrong claiming of deductions.

Also, you would have submitted a declaration to your company, you may have filled up the housing loan and interest paid thereon details of the house, on which the certificate of occupation is not yet received, which the company would have claimed as a deduction from your salary income and deducted TDS accordingly.

At that time your tax liability might have been reduced but is this as per Tax Law Provisions?

No!

Nowadays all systems and information are interconnected. You as a taxpayer can also see all the data from your income tax site and tally your income with Form26AS, Annual Information Statement, and Tax Information Statement before actually filing it.

Ok, Got it!

So, Then,

What are the house loan tax exemptions?

Exemptions and rebates are never taxed at all and hence never included in your total income. There are no exemptions and rebates in Income Tax for House Loan Principal Repayment or Interest payments. All exemptions and rebates for House loans are called Deductions.

Remember my friend, Deductions are first included in your Total Income as Incomes under various heads and then allowed as a deduction.

House loan Tax Exemption on Principal comes under which section?

There you go!

The most talked about deduction in Income Tax u/s Section 80C for Principal Repayment of Housing Loan

Then, Home loan Interest comes under which section?

The Interest on home loan tax is deductible u/Section 24 including Pre-Occupation Interest.

What is House Loan Tax Exemption limit?

You might have paid an EMI which includes Principal Repayment, that qualifies for a Tax Deduction of Rs.1,50,000

How much Home Loan Interest is Exempt from Tax?

Your Interest Payment Including Pre-occupation Interest on the housing loan deduction qualifies for Rs.2,00,000/- in case you or your parents are staying in that house.

If you have rented out the property on which the home loan is taken, then you can claim the entire amount of interest paid against rental income.

What if I want to take under construction home loan tax benefit?

catanuja-gupta-save-home-loan-tax-exemption-deduction-under-construction-property

If you have taken a Housing loan that is under construction in 2020 to be completed within 5 years (2025), you can accumulate all the interest amount during the pre-occupation period(2020 to 2025).

Your entire home loan tax benefit before possession, for the interest on a housing loan(Rs.2,00,000), before you occupy the property, is allowed as a deduction only after the certificate of occupation(2025) is received from the builder.

This Interest on housing loan deduction for under-construction property can be claimed in 5 equal annual installments (Rs.2,00,000/5=Rs.40,000/-) starting from that year(2025 to 2030).

If you declare pre-occupation interest to your company as a deduction against your salary income to reduce your tax liability and forget to reconcile even while filing your Income Tax Returns, then be ready to receive an Income Tax notice and pay tax, interest, and penalty due thereon.

If you have any excess loss that remains to be set off against Rental Income and all other income in the same year, then you can carry it forward for the next 8 assessment years to be set off only against income from house property.

ParticularsAmount (Rs.)Amount(Rs.)
Rental Income10,00,000
Less: Municipal Taxes Paid(15,000)
9,85,000
Less:30% Repairs2,95,500
Less: Interest On Housing Loan-(Annexure 1)9,00,000
(2,10,500)
Maximum Deduction Allowed on Interest on Housing Loan(2,00,000)
Annexure1
Pre-Occupation Interest2,00,000
Interest in 5 equal Annual Instalments40,000
Interest paid for the year8,60,000
Total Interest Claimed9,00,000
Interest on home loan tax exemption under-construction property

Note: Rs.10500 will be allowed to be carried forward for 8 Assessment years. If you fall in 30% Tax bracket, then you have saved Rs.60000(2,00,000*30%) & Rs. 50000(1,50,000*30%) on Principal Repayment.

What if I want to claim a joint home loan tax benefit declaration?

catanuja-gupta-save-home-loan-tax-exemption-deduction-joint-home

All jointly purchased property by co-applicants can avail of home loan tax benefit of Interest on the housing loan and Principal repayment amounting to a maximum home loan tax benefit of Rs.2,00,000 and Rs.1,50,000 in each file per annum, if you are staying in the same house.

Moreover, if you have put the house on rent, then the entire amount of Interest on the housing loan including Pre-Occupation Interest can be claimed as a deduction.

The Total Net loss from “Income from House Property” available for set-off against all your other Income is only Rs.2,00,000/- in each of your income tax filing per annum.

Joint Home Loan Tax Benefit Calculator

jointly-owned-property-interest

Home Loan Tax Benefit Calculator

If you have received Rental Income of Rs.10Lacs, Paid Interest on Housing Loan Rs.6,00,000/-. Then instead of paying Tax of Rs.3,00,000/-, you will have to pay tax only Rs.26,850/- as computed below.

Rental Income10,00,000
Less:Municipal Taxes Paid(15,000)
9,85,000
Less:30% Repairs2,95,500
Less:Interest On Housing Loan6,00,000
Income from House Property89,500
Tax Payable on only Rs.89,50026,850(89,500*30%)
Tax benefit on Interest on Home Loan Tax Exemption

Here are the 4 mistakes to avoid while claiming deduction from home loan tax;

catanuja-gupta-save-home-loan-tax-exemption-deduction-mistakes

Some taxpayers mistake this provision to take the full amount of Interest on housing loans and Principal Repayment even if their EMI is much less than Rs.3,50,000 per annum. This is a case of excess deduction claimed. You can claim a lower of EMI paid or Rs.3,50,000/- whichever is less.

Some co-owners even if not paid for the loan, claim the Interest and Principal repayment deduction against their incomes, which is not allowed. Only after transferring or paying the amount of repayment, can they claim this deduction. Just because you are a co-owner in the ownership agreement and loan document, doesn’t qualify you to claim deduction, you should have paid your portion of EMI to claim the deduction.

Co-owners can claim an equal proportion of Interest and Principal Repayment against their income if paid. But sometimes each co-owner takes the whole amount of Interest and Principal Repayment in each file thereby resulting in a double exemption benefit.

Sometimes you may change jobs during the year, and you submit deduction details to both companies. Both companies reduce Principal repayment as a deduction u/s80C. This amounts to not only taking double advantage of the Basic Exemption Limit but also claiming Housing Principal Repayment deduction u/s 80C twice, which later on leads to paying extra taxes at the time of filing your return of income along with Interest for delayed payment of taxes.

But wait,

Check out these House Loan Tax benefits

If you have 3 houses, then you can claim 2 of them as Self-Occupied Property and the 3rd house as Let Out or Deemed to be Let Out. Since there is no cap on Interest deduction on Let Out or Deemed to be let out property, you can plan the loan and deduction against 3rd house to reduce your overall tax liability.

If you are staying in your house on which the loan is taken, and if this loan is mainly to claim interest and Principal Repayment deduction, you are the only person liable to pay this loan, and if your EMI is much more than Rs.3,50,000/-per annum. If you have the liquidity to pay off the loan, then pay off the loan such that the EMI pending is only Rs.3,50,000/-per annum. This will not only free you from your debt but also save tax to the extent of Rs.3,50,000/-*30%=1,05,000/-if you are falling in the 30% tax bracket.

How Much Tax can be Saved on a Home Loan?

Income from Salary/Business/Profession/Capital Gains/Other Sources30,00,000
Income from House Property
GAVNIL
Less: Interest On Housing Loan(2,00,000)(2,00,000)
Gross Total Income28,00,000
Less: Deductions U/s 80C: Principal Repayment of Home Loan Tax(1,50,000)
Total Income26,50,000
Tax On Total Income of Rs.26,50,0006,07,500
Tax on 30,00,000 without Interest on Home Loan exemption (as per tax slab)7,12,500
Total Tax Saved on Home Loan1,05,000
Tax saved on Home Loan

Conclusion

Claim Housing Loan Principal Repayment and Interest only to the extent paid. The interest on housing loans helps to reduce not only your rental income but also a set-off against any other head of Income. You can claim a maximum of Rs.1,50,000 u/s 80C for the principal repayment of your house and Rs.2,00,000/- against Interest paid. This reduces your tax liability to the extent of Rs.1,05,000/-(Rs.3,50,000*30%)

If you want any clarifications about claiming deductions to reduce your tax liability, send your details to [email protected] and your Income Tax Return will be filed in less than half an hour.

You can also contact me here

FAQ’s

How much interest on home loan is tax deductible?

Interest Paid for the year including interest paid for pre-occupation period upto a maximum of Rs.2,00,000 is allowed as a deduction on self-occupied property. On let out property, you can claim entire interest paid against rental income.

Can I claim both 80C and section 24?

Yes, 80C is a deduction of Rs.1,50,000 for the principal repayment of home loan taken and Section 24 is the interest on housing loan of Rs.2,00,000

Is housing loan income tax exemption for 2023 24?

Yes, the exemption which is the deduction for home loan principal repayment and interest is allowed as a deduction for 2023 24 also.

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