Planning to buy a home? It is time to understand various tax saving options available to you.

1. Tax Saving on Self-Occupied Property
2. Tax Saving on Rental Property
3. Tax Saving on Under-Construction Property
4. Joint Home Ownership and Joint Home Loan Liability

Tax Saving on Self-Occupied Property

On Home Loan Principal Repayment

If you take a home loan to buy a house, you would be paying monthly EMIs. These EMIs have two components, namely interest and principal.

Under Section 80C, you can claim deduction for the principal repayment that you made during a financial year.

Key points to remember-

• Maximum permissible amount of deduction - Rs. 1.5 lakhs annually

• The deduction so claimed will be reversed if the house is sold within 5 years of getting its possession. The amount so claimed in the previous years will be added to the taxable income in the year of sale.

On Interest paid on Home Loan

• Maximum permissible amount of deduction - Rs. 2 lakhs annually

On Expenses incurred at the time of Buying the House

• Maximum permissible amount of deduction - Rs. 1.50 lakhs annually (clubbed under Sec 80C as mentioned above)

• Deduction to be claimed only in the year in which it is paid

• All the above tax savings can be availed only in case of self-occupied properties.

For First Time Home Buyers (for Self-Accommodation)

Key points to remember-

• For Section 80EE

• Maximum permissible amount of deduction - Rs. 50,000/- annually

• Loan amount should not be greater than Rs. 35 lakhs

• Property value should not exceed Rs. 50 lakhs

• The loan must have been sanctioned between 1st April 2016 to 31st March 2017

• On the date of sanction of the loan, you should not be owning any other house.

• For Section 80EEA

• Maximum permissible amount of deduction - Rs. 1,50,000/- annually

• Property value should not exceed Rs. 45 lakhs

• The loan must have been sanctioned between 1st April 2019 to 31st March 2021

• On the date of sanction of the loan, you should not be owning any other house

• You should not also be eligible to claim deduction under section 80EE

Tax Benefits on Rental Property

Rent income that you get from your rented property is taxable. Certain deductions are allowed in this regard as well.

From your annual rent income, you can deduct the following amount paid during a financial year, thereby reducing your taxable income-

• Actual amount of Municipal Taxes paid (like Property Tax, Sewerage tax)

• Standard Deduction for Repairs and maintenance – a notional amount equal to 30% of the annual rental income (irrespective of whether it was incurred or not)

• Interest paid on home loan. Unlike self-occupied property, here there is no upper ceiling and entire amount of interest paid can be deducted from the rental income arising from the property.

After claiming the above deductions from rental income, you may get profit or loss from house property. In case of profit, it gets added to your taxable income from other sources. In case of loss, you can set-off the losses against income from other sources up to a maximum permissible limit.

Key points to remember-

• Maximum permissible amount of loss set-off - Rs. 2 lakhs annually (clubbed under Sec 24 as mentioned above)

• If losses exceed Rs. 2 lakhs, then it can be carried forward for up to 8 years and claimed against income of those 8 years (each year’s maximum permissible limit remains at Rs. 2 lakhs).

Tax Saving on Under-Construction Property

When you take home loan for an under-construction property, you start paying installments to your bank even before getting possession of the property. This is called pre-EMI which again has both interest and principal component. There is no tax provision to allow you to claim deduction for such interest payments in the year you pay it.

However, it is worth noting that you can claim deduction for the interest paid during construction period from the year in which the construction is completed.

After the property is ready, its tax benefit will depend upon which category it falls under- self-occupied property or rental property. 

Key points to remember-

• Maximum permissible amount of deduction - Rs. 2 lakhs annually (clubbed under Sec 24 as mentioned above)

• Deduction to be claimed in five equal annual installments

Joint Home Ownership and Joint Home Loan Liability

If a house is bought in joint name and the home loan is also taken jointly, then taxes could be saved even more efficiently.

In case of self-occupied property - Both the co-owners can individually claim deduction under Section 24 and 80C mentioned above (interest payment upto Rs 2 lakhs each and principal repayment upto Rs. 1.5 lakhs each).

In case of rental property - The rent income can be split between the co-owners in the ratio of their home ownership. This can always be adjusted based on the income slabs that both the co-owners fall into to gain maximum benefit.

Neha Agrawal - Co-Founder, OPENMINDS

nehaagrawal@openminds.co.in | +91 9820402693 | www.openminds.co.in

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