Tax benefits on home loan interest in FY 2015-16

The financial year is drawing to a close and if you are paying home loan EMIs, here is everything you need to know about tax benefits.

TAX DEDUCTION ON HOME LOAN when property is self-occupied

Applicable when it’s the only house you own and it is not rented. Self-occupied means you live in the house. The tax treatment is same when it is lying vacant. If you own more than one property, only one is allowed to be treated as self-occupied, others are assumed to be rented.

Nature What to claim in FY 2015-16 Maximum amount that can be claimed Section applicable
Home Loan interest Interest portion of home loan EMI for the year Rs 2,00,000* Section 24
Principal repayment Principal portion of home loan EMI for the year Rs 1,50,000 Section 80C
Other charges Stamp Duty and registration charges paid during the year Rs 1,50,000 Section 80C
Pre-construction interest 1/5th of Total preconstruction interest Within Rs 2,00,000* above Section 24

 

* Shall be Rs 30,000 when

loan is taken for repairs or renovation or reconstruction.

OR

Construction is not completed within 3 years. 3 years calculated from the end of the financial year in which loan was taken.

If any one of the above is true, you’ll be allowed to claim a maximum of Rs 30,000 in one financial year on home loan interest.

 

TAX DEDUCTION ON HOME LOAN when property is rented

Rented means your property earns rental income. If you own more than one house property and both are self-occupied, one of them is assumed to be rented out. In such cases rental income is assumed and included in your total income.

Nature What to claim in FY 2015-16 Maximum amount that can be claimed Section applicable
Home Loan interest Interest portion of home loan EMI No limit, claim full interest Section 24
Standard Deduction for repairs, insurance etc. 30% of rental income 30% of rental income, irrespective of actuals * Section 24
Principal repayment Principal portion of home loan Rs 1,50,000 Section 80C
Other charges Stamp Duty and registration charges Rs 1,50,000 Section 80C
Pre-construction interest 1/5th of Total preconstruction interest No limit Section 24

 

* automatically allowed on ClearTax

 

Conditions you must meet to claim this deduction

  • You must be an owner in the house property. Sometimes, you may end up repaying a home loan although your spouse or parent owns the property, in such a case you’ll not be able to claim interest deduction in your income tax return.
  • You must be a borrower in the home loan – An owner must also be a borrower. If you own the property but did not sign up for the loan, you cannot claim these tax benefits.
  • Construction of the property must be complete – All of these home loan benefits, can be claimed starting the year in which the construction of the property is complete. For example if construction is completed on 10th October 2015, you can claim the entire year’s interest in your tax return for financial year 2015-16.
  • Interest certificate – You must obtain an interest certificate from the lender which has details of loan taken and payments made.
  • Section 80EE benefits are not available – For financial year 2015-16, Section 80EE are not available. These are applicable starting financial year 2016-17. You can read here about deduction allowed in earlier years.

 

Deduction when property is jointly owned

  • Both parties must be co-owners – Ownership is mandatory to claim tax benefits.
  • Both parties must be co-borrowers – the loan must be taken jointly.
  • Both parties must pay interest – If one of the borrowers is making the full interest payment she is eligible to claim the entire interest in her return.
  • Deduction can be claimed in ratio of ownership – if ratio is not decided, deduction on home loan interest can be claimed 50:50. Limit for each owner/borrower is Rs 2,00,000 individually. Therefore in case of joint home loans, a higher total deduction can be claimed.

 

We have a comprehensive guide on home loan tax benefits which explains all of these in great detail- ClearTax’s guide to income from House Property

 

In tomorrow’s blog post we’ll look at tax benefit on home loan in FY 2016-17.

If you have any questions, do comment or write to us support@cleartax.in

 

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