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Tax Benefit on Home Loan: Section 24, 80EEA & 80C With Automated Excel Based Income Tax Revised Form 16 Part B for F.Y. 2019-20

The
repayment of Home Loan comprises of 2 components i.e. Repayment of Principal and Repayment of Interest. As
the repayment comprises of 2 different components, the tax
benefit on a home loan is governed
by different sections of
the Income Tax Act and these are claimed
as tax deductions under
different sections while
filing the Income Tax Return.


Tax Benefit of Home Loan
The following is the benefit of Home Loan which can be claimed as Deduction:-
Section Deduction allowed Allowed for
Section 24 Rs . 2,00,000
Interest repayment
Section 80C Rs . 1,50,000 Principal repayment
Section 80EEA Rs . 1,50,000 Interest repayment

These Sections under which
Tax Benefit on Home Loan can be claimed
are explained below:-
Section 80C : Tax benefit on
Home Loan (Principal Amount)
The amount paid as Repayment
of Principal Amount of Home Loan by an Individual/HUF is
allowed as tax deduction under Section 80C of the Income Tax Act. The
maximum tax deduction allowed under Section 80C is Rs. 1,50,000.
This tax deduction is the total of the deduction allowed under Section 80C and includes amount invested in PPF Account, Tax Saving Fixed Deposits , Equity Oriented Mutual funds , National Savings
Certificate, Senior Citizens
Saving Scheme etc.
This tax deduction under Section 80C
is available on payment basis irrespective of the year
for which the payment has been made. The Amount paid as Stamp Duty & Registration Fee is also
allowed as tax deduction under Section 80C even if the Assessee has not taken Loan.

 
However,
tax benefit of home loan under this section for repayment of principal part
of the home loan is allowed only after the construction is complete and the
completion certificate has been awarded
. No deduction would be allowed under this section for repayment of principal for
those years during which the property was under construction.
Moreover, in case you are planning to buy an under-construction property as it
is priced at a lower price as compared to a fully completed property, you are
here also requested to note that GST
is also levied on
under-construction Property. However, no Service Tax is levied on properties on which
construction has been fully completed.
House Property should not be sold within 5 years
Section 80C (5) also states that in case the assessee transfers the house property
on which he has claimed tax
deduction under Section 80C
before the expiry of 5 years
from the end of the Financial Year in which the possession has been obtained by him, then no
deduction and tax benefit on Home Loan shall be allowed under Section 80C . The aggregate amount of tax
deduction already claimed
in respect of previous years shall be deemed to be the Income of the Assessee of such year in
which the property has been sold and the Assessee shall be liable to pay tax on such
income.
Tax benefit on Home Loan
(Interest Amount)

Tax Benefit on Home Loan for payment of Interest on Home Loan can be claimed as Deduction under
Section 24 as well as under the newly inserted section 80EEA ( Amended by Budget 2020)
Section 24: Income Tax Benefit on Interest on Loan for Purchase/Construction
of Real Estate
Tax
Benefit on Home Loan for payment of Interest is allowed as a deduction under
Section 24 of the Income Tax Act. As per Section 24, the Income from House
Property shall be reduced
by the amount of Interest paid on Loan where the loan has been taken for the
purpose of Purchase/ Construction/ Repair/ Renewal/ Reconstruction of
Property.
The maximum tax deduction allowed under Section 24 of a self- occupied property is subject
to a maximum limit of Rs . 2 Lakhs (increased in Budget 2014
from 1.5 Lakhs to Rs . 2 Lakhs ).
In case the property for which the Home Loan has been taken is not self- occupied , no maximum limit
has been prescribed in
this case and the taxpayer can take tax deduction of the whole interest amount
under Section 24.
Please Note: In case a property has not been self- occupied by the owner by
reason of the fact owing to
his employment, business or profession carried on at any other place, he has to
reside at that other place
not belonging to him, then the amount of tax deduction allowed under Section 24
shall be Rs . 2 Lakhs only.
 
Section
24 is deductible on payable basis, i.e. on accrual basis. Hence,
deduction under Section 24 can be claimed on yearly basis even
if no payment has been made during the year as compared to Section 80C which allows for deduction only on
payment basis.
Moreover, if the property is not acquired/constructed
completed within 5 years from the end of financial year in which the loan was
taken, the interest benefit in this case would be reduced from 2 Lakhs to Rs 30 thousand only. (Limit
increased from 3 years to 5 years from FY 2016-17 onwards ).
The Quantum of Deduction
allowed for payment of Interest on Home Loan under Section 24 has been summarized below:-
Quantum of Deduction
allowed for Payment of Interest on Home Loan under Section 24
Type of Property Self Occupied
Property Not Self Occupied
Property
Completion Status Completed within 5 years Not completed within 5 years
Completed within 5 years Not completed within 5 years
Deduction Allowed Rs . 2,00,000 Rs . 30,000 No Limit No Limit
Budget 2017 Update
In
case of non-self occupied
property, the interest paid is reduced
from the Rent paid to arrive at the Income from House Property. In some cases,
it may happen that the Interest paid is more than the Rent earned which will result in
Loss from House Property. This Loss is allowed to be set-off with Income from
any other head.
The Finance Act 2017 announced
on 1st Feb 2017 has put a restriction to the maximum
amount of Loss under head House Property that can be set-off from other heads
of Income. From Financial Year 2017-18 onwards , Loss of a maximum of
Rs . 2 Lakhs is allowed to be set-off
with Income from other heads. The amount which is not set-off shall be carried
forward to future years.
These new provisions
inserted in the Income Tax Act have been very nicely explained in this link Income Tax Treatment of Loss from
House Property.
Income Tax treatment of Pre
-Construction Interest
In many cases, amount is paid for the purchase of property even before the
construction is completed. Some home buyers , purchase properties on
loan before the completion of construction and start paying EMI to the Bank.
In such cases, Section 24 very specifically states that Tax Deduction for
payment of Interest shall not be allowed before the construction is complete.
In such cases,
1. If Loan is taken for purpose of Repair/ Renewal/ Reconstruction: No
Tax Deduction allowed for Interest paid before Completion
2. If Loan is taken for the purpose of Purchase/ Construction: The
Interest that has been paid before the completion of construction should be aggregated and the whole aggregated amount shall be
allowed as tax deduction in 5 equal installments for 5 successive
Financial Years starting from the year in which the construction has been
completed.
For eg : Mr. A purchases a House in New Delhi
in 2009 and took a loan of Rs
. 10,00,000 from a Bank paying
Interest @ 10% p.a. The Construction was
completed in April 2011.
Now, As per Section 24 of the Income Tax Act, tax deduction for payment of
Interest would only be allowed from financial year 2011-12 onwards . However, the
Interest paid on Loan before the completion of Construction (i.e. Rs . 2,00,000) would be allowed
as tax deduction for the next 5 Financial years @ 40,000 p.a. commencing from Financial
Year 2011-12 onwards .
(Easy amounts have been taken in this example for simplification
purposes)
Important Points:-
1. Interest paid for outstanding amount is not allowed as Tax Deduction ( Shew Kissan Bhatter v. CIT (1973) 89 ITR 61( SC )
2. This tax deduction shall be available only if the construction is
completed within 5 years from the end of the financial year in which the
capital is borrowed
3. Taxpayer cannot claim any deduction for Commission Paid for arranging the Loan
4. If the taxpayer is not earning
any income from house property, but is paying Municipal Taxes and Int on Home Loan, this would
lead to Loss under head Income from House Property. This loss arising under head Income
from House Property is allowed to be set-off against income from various
other heads in the same Financial Year.
5. In case the loss cannot be set-off against income from other sources in
the same financial year, the loss can be carried forward to future years and
set-off against income arising
from House Property for the next 8 financial years.
6. Tax Benefits of
Interest on Home Loan can be claimed
only by the person who has acquired
or constructed the
property with the Borrowed Funds
. It is not available to the Successor of the Property.
For
the purpose of simplicity and easy understanding, a comparison of Tax Benefit
on Home Loan under Section 24 and Section 80C has been made here under:-
Particulars
Section 24 Section 80C

Tax Deduction allowed for Interest Principal
Type of Property Any Real Estate Property Only Residential House Property
Basis of Tax Deduction Accrual
basis Paid basis
Quantum of Tax Deduction
allowed Self Occupied
Property: Rs . 2,00,000. Non
Self Occupied Property: No
Limit Rs . 1,50,000
Purpose of Loan Purchase/
Construction/ Repair/ Renewal/ Reconstruction of a
Residential House Property. Purchase /
Construction of a new House Property
Eligibility for claiming Tax deduction Purchase/ Construction
should be completed within 5 years Nil

Restriction on Sale of
Property Nil Tax Deduction claimed would be reversed if Property sold
within 5 years

Section 80EEA : Income Tax
Benefit on Interest on Home Loan (First Time Buyers )
The interest deduction can be claimed
under Section 80EEA as well
which is over and above the deduction allowed to be claimed under Section 24 of Rs . 2 Lakhs and also above the
deduction of Rs . 1.5 Lakhs allowed under Section 80C



This Deduction of Section 80EEA
would be applicable only in the following cases:-

 1. This deduction would be allowed only if the stamp duty value of the property
purchased is less than Rs . 45 Lakhs .
2. The loan should be sanctioned
between 1st April 2019 and 31st March 2021.
The above 3 Sections relating to Tax Benefits on Home Loans have been summarised as under:-
Particulars Quantum of Deduction ( Rs .)
Self Occupied Property
Non-Self Occupied Property
Section 24 2,00,000 No Limit
Section 80C 1,50,000 1,50,000
Section 80EE 1,50,000 1,50,000
Please Note:-
1. The above tax deductions
are per person and not per Property. So in case you’ ve purchased a property jointly and have taken a joint
home loan, each person repaying
the amount would be eligible to claim whole deduction separately .
2. If you are living in a rented
premise and are taking Tax
Benefit of HRA Allowance, even
then you can claim Tax benefit on home loan under Section 24, Section 80EE & Section 80C .
3. In case a person is opting
for the New Slab Rates as announced in Budget 2020,
they would not be able to claim the benefit of any of these deductions .
For claiming the above tax
deductions , you would
be required to furnish the statement provided by the lender clearly indicating the amount payable and paid towards
Interest and Principal. After claiming
the above deductions of
Tax Benefit on Home Loan, the balance Income of an Individual would be taxed as per the Income Tax Slab Rates. ( Recommended Read: Income
Tax Slab Rates)
If you have any more further queries
regarding claiming deduction under
Section 80C for Principal Repayment or under Section
24 for Principal Repayment
.

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