Tax benefits on home loan interest in FY 2016-17

We have already discussed home loan tax benefits available in financial year 2015-16(assessment year 2016-17). You can read them in detail here.

NEW: BUDGET 2017 update: Reduction in tax benefit on home loan interest for rented property. Read all the details here

Budget 2016 brought some tax related changes for home buyers applicable from financial year 2016-17, here’s a recap of your Tax Benefits on HOME LOANS in FY 2016-17 –

  • Rs 2,00,000 deduction on interest paid for self occupied property – A maximum deduction of Rs 2,00,000 can be claimed for a property which is self-occupied. Self-occupied means a property in which you live or your family lives or it is lying vacant. Read in detail here.
  • Additional tax benefits under section 80EE – Section 80EE has been revamped. An additional deduction of Rs 50,000 on home loan interest can be claimed starting financial year 2016-17. However to be able to claim this deduction, you must meet the following conditions:
  • The loan must be taken between 1st April 2016 to 31st March 2017
  • As on the date of sanction of the loan the taxpayer should not own any property
  • The loan must be taken from a financial institution*
  • The value of the house must be less than Rs 50lakhs
  • The loan must be for less than Rs 35lakhs

*Financial institution means co-operative banks, RBI licensed banks,housing finance company.

If you meet these conditions, you can claim an additional deduction of Rs 50,000 for home loan interest in addition to Rs 2lakhs. There is no time limit for which this deduction is allowed, you can claim it for as long as you are repaying the loan.

  • Extension of time limit for completion of construction – Sometimes, taxpayers take home loans for under construction property. To claim Rs 2lakhs deduction on such home loan interest, the construction of the property must be completed within 3 years. This period of 3 years has been extended to 5 years starting 1st April 2016 (Period of 5 years is calculated from the end of the financial year in which loan is taken). Say if you have taken a loan on 30th April 2015 for a construction linked property. The construction must be complete by 31st March 2021.

You can start claiming interest deduction in the financial year in which construction of the property is complete.

Eligible Income Tax Benefits on a Home Loan for FY 2016-17:

Particulars

Deduction on Amount Conditions
Section 24

Self occupied property

Rented property

 

Interest on home loan
Interest on home loan

 

Upto Rs.2,00,000

 

No Limit

Home has been purchased/constructed within 5 years
Section 80C Principal repayment, stamp duty & registration charges Upto Rs.1,50,000 Deduction is allowed in the year in which actual principal payment is paid
Section 80EE Interest on home loan Upto Rs.50,000 ( in addition to Rs 2lakhs)

Loan must be taken between 1st April 2016 to 31st March 2017

Taxpayer should not own any property

Loan taken from a financial institution

Value of the house must be less than Rs 50 lakhs

Loan must be for less than Rs 35 lakhs.


Let us explain this with an example.

Case I: A person has a monthly salary income of Rs. 1 lakh during FY 2016-17. He already has one property in his name at another place, but owing to his employment he could not reside in this property. He plans to buys another home for his family, for which he takes a home loan of an amount of Rs. 50 lakhs from SBI at 9% p.a. interest for a duration of 20 years.  Annually interest payment comes to Rs.2,90,000.

 

Annual Income from Salary                                                                           Rs.12,00,000

Income/ (Loss) from House Property**                                                        Rs.(2,00.000)

Net Taxable Income                                                                                      Rs.10,00,000

**He paid interest of Rs.2,90,000 during the year but deduction of interest is limited to Rs. 2 lakhs. (Deduction eligible u/s 24)

Case II: A person has a monthly salary income of Rs. 75,000 during FY 2016-17. Till date he was living in a rented flat and now decides to buy a home for himself for the 1st time. He likes a 2 bedroom apartment in Lajpat nagar, Delhi that will cost him Rs. 45 lakhs. Therefore, he takes a home loan of an amount of Rs. 30 lakhs from SBI at 12% p.a interest for a duration of 16 years. Annual interest payment comes to Rs.2,35,000. He also makes repayment of home loan of an amount of Rs. 2,00,000.

 

Annual Income from Salary                                                                             Rs.9,00,000

Income/(Loss) from House property                                                              Rs.(2,00,000)

Gross Taxable Income                                                                                    Rs. 7,00,000

 

Less: Deduction allowable u/s 80C***                                                          Rs.(1,50,000)

Less:Additional Deduction u/s 80EE                                                             Rs.  (35,000)                                                    

(for 1st time home buyers)     

 

Net Taxable Income                                                                                        Rs. 5,15,000

***Though he made a payment of Rs.2 lakhs towards principal repayment of home loan but maximum amount that can be claimed under 80C is Rs.1,50,000.

***** Note in both the above examples, the period of construction of property has to be completed within 5 years i.e. if a person takes a loan and starts constructing the property from 01 April, 2016 then the property has to be completed on or before 31st March, 2021. Once, the construction is completed only then can he claim the interest amount in subsequent years.

You can read extensively about tax benefits on home ownership on ClearTax’s Guide to Tax benefits on Home Ownership.

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