Tax Benefits of Home Loan – Section 24, 80C, and 80EEA

Repayment of Home Loan comprises of 2 components – Principal and Interest. Treatment of repayment of principal and interest are governed by different sections of the Income Tax Act, 1961.

Section 80C of the Income Tax Act allows for a deduction of payment of principal component and it is allowed on the basis of actual payment made in the financial year and not on the basis of amount due in the respective financial year. Further, deduction under Section 80C is maximum up to the limit of INR 1,50,000/-.

Deduction for payment of interest can be claimed under Section 24. Now, Section 24(b) provides that if the property has been acquired or constructed with capital borrowed and such acquisition and construction is completed within 5 years from the end of financial year in which capital was borrowed, then you can claim the deduction for any interest payable on such capital to the maximum of INR 2,00,000/- and if the property has been renewed, repaired or reconstructed with the borrowed capital, then the deduction can be claimed for any interest payable to the maximum of INR 30,000/- in case the property is self-occupied. There is no maximum limit of deduction in respect of interest payable if the property is let-out.

Section 24 also provides for deduction of pre-construction period interest but not in the same year. It is allowed from the year in which the construction is completed. Pre-construction period interest allows in 5 equal installments from the year in which construction is completed and 4 succeeding previous years.

Further, Section 24 allows deduction on the basis of amount payable and not on the basis of actual payment made. Thus, even if there is no payment made in the given financial year, then also deduction can be claimed on the basis of interest payable.

Now, a Section has been inserted “Section 80EEA” that allows deduction in respect of interest on loan taken for certain house property. Deduction under this section is allowed for any interest payable on loan taken by an individual subject to maximum amount of INR 1,50,000/- provided below conditions are fulfilled:-

1. the loan has been sanctioned by the financial institution during the period beginning on the 1st day of April, 2019 and ending on the 31st day of March, 2022. 2. the stamp duty value of residential house property does not exceed forty-five lakh rupees; 3. the assessee does not own any residential house property on the date of sanction of loan.

Overall, the assessee is eligible to claim deduction of any interest payable on capital borrowed for acquisition and construction of house property upto maximum of INR 3,50,000/- (upto 2,00,000/- in section 24 and upto 1,50,000/- in section 80EEA provided specified conditions are fulfilled). And, Section 80EEA allows for pre-construction period interest also up to INR 1,50,000/- in the same year in which interest is payable.

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