Notes

Taxes Benefits Associated With Housing Loans

Multiple positive aspects - how?

EMIs (elementary monthly installments) contains two parts - the interest portion and principal amount. Interest paid is allowed because a tax advantage under section 24(b) (subject to restrictions), while the basic principle amount repaid is definitely allowed as a new deduction under section 80C.

Maximum threshold on tax gain

Maximum tax reduction for repayment primary component of home loan can't exceed Rs 1, 00, 000 under section 80C. One should continue to keep in mind of which other investments/contributions will be also allowed as a deduction below section 80C, which limit of Rs. 1, 00, 1000 applies to most of them come up with.

Housing loan interest deduction, on the particular other hand, is allowed up in order to a maximum quantity of Rs a single, 50, 000 beneath section 24(b). Nevertheless , the acquisition or construction of the house property have to be completed within 3 years through the end associated with financial year by which loan was used; otherwise, the quantity of interest advantage allowed is only up to Rs 25, 000.

Furthermore, the above tax deduction limit u/s 24(b) can be applied only for self-occupied house property. In case of let-out or deemed to be let out property property, interest is deductible without virtually any limit.

Starting particular date for claiming taxes benefit

Some point out that deduction on principal component regarding home loan under part 80C is permitted as soon as one begins repaying the home loan. Some say deduction is permitted only once the development is completed. The rules isn't clear in the matter; consequently the ambiguity continues to be.

Interest deduction upon housing loans beneath section 24(b) is usually allowed only on obtain or completion of the house property. Yet , interest deduction intended for pre-acquisition or pre-construction period is furthermore allowed but just after acquisition or even construction is finish. It is allowed on 5 equal twelve-monthly installments. But even after like the above, the total deductions should not surpass Rs. 1, 40, 000 per year.

Source of home mortgage

Unlike section 24(b), Section 80C does not allow tax deductions for home loans obtained from friends and even relatives. For professing tax benefit on principal component regarding the home financial loan under section 80C, you need to borrow from typically the lenders specified because section. There will be no such constraint under section 24(b) of the IT Act for claiming tax benefit about interest component involving the housing mortgage.

Purpose of casing loan - Residence purchase / building vs.

Home development Deduction under section 80C for main percentage of the housing loan EMI is definitely not allowed in case the home mortgage borrowing is with regard to the purpose involving reconstruction, renewal or repair of house property. Put simply, tax benefit beneath section 80C is only allowed intended for buying or making a new home. Inside contrast, deduction with regard to Interest is permitted under section 24(b) even for your bank loan taken when it comes to repair, renewal or reconstruction of existing house property but subject matter to the limit of Rs 40, 000 in case of self-occupied residence property. In case there is allow out house house, actual interest is usually allowed without any kind of ceiling.

Payment Base - Due Basis or Cash Basis

Tax benefit u/s 80C can get claimed only if typically the actual payment is done. Interest deduction u/s 24(b), on the other hand, is allowed on accrual or due schedule. Put simply, contrary to principal portion, attention deduction can end up being claimed even though not really paid.

Restriction in sale of house property

The taxes benefit under part 80C is permitted subject to the particular condition that this said house property need to not be marketed before a time period of 5 decades. If you break this, the reduction will be ceased along with the entire duty deduction claimed throughout earlier years underneath section 80C -- for repayment associated with principal component associated with the home loan - will become deemed to be your income in the year in which a person sell the property. On the other hand, the same does not apply on the housing loan interest deduction claimed beneath section 24(b).

Home loan pre-payment: Original loan versus Following loan

Tax gain on interest component of the residential loans u/s 24(b) is allowed not really only for initial home loan but also for subsequent loan(s) taken to refinance the first loan. In additional words, if the particular new housing loan is taken in order to pay off a current housing loan, tax benefit under section 24(b) is allowed. However, unlike area 24(b), there is no specific talk about under section 80C for prepayment of existing mortgage loan simply by taking a clean mortgage loan.

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