Buying a home is no less than a dream come true for most of the people every where, however due to India’s exorbitant real estate price many people have to take financial assistance to buy their dream house. one can claim the deduction of principal amount and interest paid on loan while calculating Income tax on one’s income, can claim deduction up to Rs 1.5 lakh under 80C of Income tax for the Principal amount and interest on home loan can be claimed under Sec24 (b) of Income tax up to 2 Lakh, Sec 80EE up to Rs 50 thousand and Section 80EEAup to Rs 1.5 Lakh of Income Tax Act, subject to conditions.
Home loan is an amount individual borrows from financial institutions, such as Banks, NBFC etc to buy construct a new home or renovate or extend an existing one, money is borrowed at a specific interest rate or repaid within a particular duration in smaller installments known as EMI’s.
Buying a home is no less than a dream come true, however due to India’s exorbitant real estate prices many people have to take financial assistance to buy their dream house. Home loan offers one an opportunity to fulfill their dream without compromising on other goals.
Age plays a vital role in determining home loan eligibility, younger people have a better chance and can get it for longer duration. Income stability and quantum of income plays important role. High credit score and clean repayment record enhances chances of faster loan. Lenders evaluate the existing liabilities such as personal loan, credit card bills, car loan etc.
While applying for Loan , one should not submit loan application with multiple Banks simultaneously as it affects the credit score, banks checks the CIBIL score to check one’s credit worthiness.
Check for home loan processing and other charges apart from interest rate, i.e. check for processing fees, foreclosure charges, late payment penalties, GST and other documentary charges also as they play important role in deciding amount home loan. Compare home loan offers from various lenders, always read the fine print carefully and don’t skip any para.
Choosing between Bank and NBFC for loan, Banks generally have stringent eligibility criteria for processing and disbursement, time taken for disbursement may be longer as compared to NBFC, but one must keep an eye on interest rate and other miscellaneous charges before opting between Bank and NBFC. Due diligence is needed to go for home loan.
Home Loan calculator can be used to find out which loan is beneficial, can get from hdfc.com/home-loan-emi calculator.
Interest on Fixed, Floating , Semi Fixed Rates
Fixed Rates
- Interest rate remains fixed irrespective of market condition , ideal when market rate expected to rise.
- Fixed Rate home loan is good for those who want fixed monthly repayment option.
- Certainty and security is there in terms of interest rate.
- Rates are 1 to 3 % more than floating rate.
- Suitable for short/ medium term.
Floating Rates
- Cheaper than fixed by 1 to 3%.
- Suitable for long tenure.
- Financial planning difficult as uneven nature of monthly installment.
- One should opt for this scheme when income flow is adequate to service the rate fluctuation.
Semi Fixed Rates
- Suitable for medium term period.
- Ideal when interest rate is expected to rise in short term and then fall.
- Suitable to loan borrowers who do not want to take risk.
- One should opt for this scheme when income flow is not expected to grow.
Interest on borrowed capital ( Section 24 (b))
Interest on loan borrowed for the purpose of acquisition , construction, repair, renewal or reconstruction can be claimed as deduction, interest on fresh loan to repay the original loan can also be claimed as deduction.
Interest for pre- construction period
Pre-construction period, it is the period prior to the previous year in which property is acquired or construction is completed. If property is acquired or construction completed in May 2022, then financial year 2021-22 will come under pre-construction period.
Interest on pre- construction period will be allowed as deduction as reduced by the amount allowed as deduction under any other provision of the Act over a period of five years in equal installments commencing from the year of acquisition or completion of construction. i.e. Property acquired or completed in the year May 2022, then total interest paid on house property loan amount before FY 2022-23 will be deducted over period of five years in equal installments.
Principal amount of housing loan during the year can be claimed as deduction under Sec80 C of Income Tax Act, maximum limit of deduction available under this section is Rs 1.5 lakh.
Deduction of Interest Amount
In Respect of Self -Occupied property
Interest on borrowed capital under section 24(b), where loan is taken for repair, renewal or reconstruction of the house, actual interest in aggregate for one or two self occupied property subject to maximum of Rs 30,000 will be allowed as deduction.
Where self -occupied property is acquired or constructed with capital borrowed, following condition
If loan is taken before 1.04.99 then actual interest in aggregate for one or two self occupied property subject to maximum of RS 30,000 will be allowed as deduction.
If loan is taken after 1.04.99, then two conditions must be satisfied,
a) Acquisition or construction completed within five years from the end of financial year in which capital was borrowed, i.e. if loan was borrowed in Nov 2017( financial year 2017-18, end of financial year is 31 st March ,2018), then completion or property must be acquired before March 2023, i.e. financial year 2022-23.
b) Certificate from lender specifying interest payable.
If both the conditions are met, then actual interest in aggregate for one or two self occupied properties subject to maximum amount of Rs 2, 00,000.
If above two conditions are not met, then actual interest in aggregate for one or two self occupied properties subject to maximum amount of Rs 30,000.
Deductions in case of Let Out or deemed to be let out properties:-,Interest on borrowed capital under section 24(b) is fully allowed, no maximum limit.
Deemed to be let out :- where the assesses owns more than two properties for self occupation, then income of two such properties at the option of assesses shall be computed under self occupied category and the third self occupied property shall be treated as deemed to be let out, this option can be changed year after year in a manner beneficial to the assesses.
Interest deduction from foreign Bank or institution will be allowed provided TDS deduction is done while doing repayment to foreign Bank or institution.
Deduction under Section 80EE
Interest on loan taken by individual for residential house property from any financial institution
- Provision is for first time buyer.
- Deduction should not exceed Rs 50,000.
- Loan has been sanctioned by the financial institution during the period 1.04.2016 to 31.03.2017.
- Loan amount should not exceed Rs 35,00,000.
- Value of residential house property does not exceed Rs 50,00,000.
- Assesses does not own any residential house property on the date of sanction of loan.
- If deduction is allowed under this section than deduction shall not be allowed in respect of such interest under any other provision of the Act. Deduction under section 80EEA:-
- Interest deduction allowed for low cost housing loans taken during the period between 1/04/2019 to31/03/2022.
- Interest deduction from FY 2019-20, AY 2020-21.
- Only for individual, first time home buyer.
- Deduction for interest payment up to Rs 1,50,000,this deduction is over and above the deduction of Rs 2,00,000 under section 24(b) of Income tax Act.
- One should not own any other house property on the date of sanction of loan.
- Housing loan must be taken from financial institution or housing finance company for buying a residential house property.
- Value of house Rs 45,00,000 or less.
- Tax payer should not be eligible to claim deduction under section 80EE.
- Section does not specify that one need to be resident , hence both resident and non- resident can purchase and avail deduction.
- Section does not mention whether the house to be self – occupied to claim deduction, so borrowers in rent can also claim deduction, singly or jointly.
FAQ
- How much deduction can one claim out of total repayment of housing loan during the financial year. Can claim principal amount of Rs Rs 1,50,000 ( maximum) under section 80C, interest amount can be claimed under Sec24(b) for Rs 2,00,000 and can claim further under section 80 EEA for Rs 1,50,00, provided conditions mentioned under both the sections are met.
- Can one claim deduction under 24(b) and 80 EE & how much. Yes, can claim, Rs 2,00,00 under 24(b) and Rs 50,000 under section 80 EE, subject to condition’s mentioned under the section are met.
- Can one claim deduction under 80EE and 80EEA. No
- Can one claim deduction under 24(b) and 80 EE. Yes, can claim, Rs 2,00,000under section 24(b) and Rs 50,000 under 80EE, subject to condition’s mentioned under the section are met.
- Can Joint owners claim deduction under 80EEA. Yes, subject to conditions, maximum amount Rs 1,50,000.