Here's How You Can Claim Tax Deduction Of Interest For House Property Income
The Income Tax Act under Section 80EE allows homebuyers to claim deduction on interest paid on home loans. The deduction is available in respect of interest on loans taken for the purchase or construction of a new house or renovation of your old residential property. However, the deduction is applicable under certain provision. Makaaniq highlights major feature of the section 80EE and section 24-
Limit on tax deduction under Section 24, Section 80EE
First-time homebuyers can claim deduction under section 80EE for interest paid on home loan up to maximum Rs 50,000 per financial year until the loan is fully repaid. However, under Section 24, home buyers can claim deduction of up to Rs 2 lakh on their home loan interest if the property is self-occupied or vacant. If you have rented out the house, the entire interest on the home loan is allowed as a deduction.
Your deduction on interest is limited to Rs.30,000 if you fail to meet any of the conditions given below-
*The home loan should be used for buying or construction of a new property.
*The loan must be taken on or after 1 April, 1999.
*The buying or construction must be completed within 3 years from the end of the financial year in which the loan was taken.
Also, home loan taken for reconstruction, repairs or renewal is liable for Rs 30,000 as deduction.
Number of properties eligible for such deduction
There are no restrictions with regard to the number of properties for which you can claim tax benefits in respect of the interest. The Income Tax Laws classify house properties in two categories for the purpose of allowance of interest on such loans: Self-occupied and let-out properties. However, in case you occupy more than one house yourself for the residence of your parents or other relatives in respect of which you do not receive any monetary compensation, you have to make a choice. Out of such properties, you have to choose any one property as self-occupied. The other properties are then treated as let out and you have to offer notional rent for tax, though you might not have received any income from such property.
When can you start claiming this deduction
Though you are entitled to claim deduction in respect of home loan taken for the purpose of constructing your own house or for the purpose of booking an under construction house, the deduction can start only from the financial year in which you take possession of the property or complete the construction. However, aggregate interest paid on the money borrowed while the property was being constructed will be allowed in five equal instalments. First of such instalment can be claimed from the year in which the construction of the property is completed or possession is taken.
Requirement as to holding period of the property
For claims made towards repayment of home loan taken from specified institutions you are required to hold the property for a period of five years from the end of the financial year in which you had taken possession, failing which all the benefits allowed to you earlier under Section 80 C is taxed in the year of sale. However, there is no such requirement of minimum holding period in respect of interest allowance. So, you can sell the property any time without forfeiting the tax benefits availed earlier. Also, if interest is paid during construction, in case you sell the property before completion of the five years from the year in which you took the possession, you will lose your right to claim the deduction in respect of unexpired period of five years
Other points to be considered
*For claiming the deduction, the value of the house should be Rs 50 lakhs or less
*The loan amount should be Rs 35 lakhs or less
*The loan should be sanctioned by a financial institution or a housing finance company
*The date of loan sanctioned should be between 01.04.2016 to 31.03.2017.
*As on the date of sanction of loan no other residential property should be in the buyer's name.