How can I avail the maximum home loan tax benefit in India in 2022

 

Section 80C: Tax Benefit on Home Loans (Principal Amount).

Section 80C of Income Tax Act allows tax deductions for amounts paid to Repayment of Principal Amount of Home loan by individuals/ HUF. Section 80C allows for a maximum tax deduction of Rs. 1,50,000.

This tax deduction includes all amounts invested in PPF Accounts, Tax Saving Fixed Deposits and Equity Oriented Mutual Funds. It also includes National Savings Certificates, Senior Citizens Saving Scheme, National Savings Certificates, and National Savings Certificates.

The Section 80C tax deduction is available on a payment basis, regardless of the year in which the payment was made. Even if the Assessee did not take a loan, the tax deduction allowed under Section 80C is also available for the amount paid as stamp duty and registration fee.

The tax benefit of a home loan under this section is for principal repayment. However, it is only allowed after construction has been completed and a completion certificate has been issued. This section does not allow for any deductions for principal repayments for years that the property was in construction.

You should also note that GST will be charged on any under-construction Property. Property that has had its construction completed is exempted from GST.

House Property shouldn't be sold in the next 5 years

Section80C(5) states that if the assessee transfers the property for which he claimed tax deduction under Section80C prior to the expiry 5 years after the financial year in which the possession was obtained, then no tax benefit on the Home Loan or deduction shall be allowed under Section80C. The Assessee is liable for tax on the income derived from previous years.

Tax Benefit on Home Loans (Interest Amount).

You can claim a tax benefit on a Home Loan to pay the Interest. This can be claimed under Section24 or under the new section 80EEA (Amended By Budget 2020).

Section 24: Income Tax Benefit on Interest on Loan for Purchase/Construction of Real Estate

Tax Benefit on Home Loans for Payment of Interest: This is allowed under Section 24 of Income Tax Act. Section 24 provides that the income from house property shall be reduced by the interest paid on loan if the loan was taken to purchase/ construct/ repair/ renew/ rebuild the property.

Maximum tax deduction permitted under Section 24 for self-occupied properties is Rs. 2 Lakhs (increased from 1.5 Lakhs à Rs. 2 Lakhs).

Please note: If a property is not self-occupied due to the fact that the owner has an employment, business, or profession at another place, he must reside there. Then, the tax deduction allowed by Section 24 shall be Rs. 2 Lakhs is the maximum.

Important to remember that the tax deduction for Interest on Loan under Section 24, which is deducted on a payable basis, is not deductible. accrual. As opposed to Section 80C, which only allows deduction on a payment basis, Section 24 allows deduction on a yearly basis.

Additionally, the interest benefit would be reduced to Rs 2 Lakhs if the property isn't acquired or constructed within 5 year after the end of the financial year in the loan was taken. From FY 2016-17, the limit was increased to 5 years.

Deduction for Non Self-Occupied Property Budget Update 2017

Non-self-occupied properties are subject to interest. This is deducted from the Rent, which is used to calculate the Income from House Property. Sometimes, the interest paid may be higher than the Rent earned. In these cases, there will be a loss from House Property. This loss can be offset with income from any other head.

The Finance Act 2017, which was published on February 1, 2017, has placed a limit on the maximum loss under head House Property that may be offset from other income heads. The maximum loss allowed is Rs. You can set-off 2 Lakhs with income from other heads. The amount not set-off may be carried forward into future years.

These new provisions have been explained very well in this link Income Tax Treat of Loss from House Property.

The maximum interest deduction that can be claimed on Self Occupied Property amounts to Rs. 2 Lakhs, and for property that is not self-occupied the loss should not exceed Rs. 2 Lakhs (i.e. Rent Received – Std Deduction Property Taxes – Interest Rapid should not exceed Rs. 2 Lakhs). Self-occupied property is subject to Rs. 2 Lakhs of interest above Rs. will become void and can no longer be claimed as a deduction. In the case of non-self occupied property, the loss from house property that is more than Rs. 2 Lakhs will be carried forward to the next year and can be claimed in that year.

Income tax treatment for Pre-Construction Interest

Many times, the amount for the property purchase is paid before construction has even begun. Some home buyers purchase property on loan prior to completion and then start paying EMIs to the Bank.

Section 24 specifically states that the deduction of tax for interest payment is not allowed in such cases. These cases are called "Section 24".

1. For the purpose of repair/renewal/ reconstruction: Interest paid prior to completion is not subject to tax
2. If a loan is taken to purchase/constructive: All interest paid prior to completion of construction must be accumulated and the entire amount shall be subject to tax deduction in five equal installments over 5 Financial Years, starting with the year of completion.

For example, Mr. A bought a house in New Delhi in 2009 with a loan of Rs. 10,00,000.00 from a Bank at 10% interest The Construction was completed April 2011.

Section 24 of Income Tax Act states that interest payments are subject to tax deduction starting in financial year 2011-12. The Interest on a Loan paid before completion of Construction (i.e. Rs. 2,00,000.) will be allowed as a tax deduction for the 5 financial years @ 40,000 p.a. Beginning with Financial Year 2011-12. (Simplified amounts used in this example to simplify)

Important Points:-

1. Tax deduction does not allow interest paid on outstanding amounts (Shew kissan Bhatter (1973) 89ITR 61(SC).
2. This tax deduction will only be available if construction is completed within five years of the financialyear in the capital was borrowed.
3. The taxpayer can not claim any deduction for commission paid for the arrangement of the loan
4. If the taxpayer does not earn any income from his or her house property but pays Municipal Taxes, Int on Home Loan and other taxes, it would be considered a Loss under Head Income from House Property. The loss under Head Income from House Property can be offset against income from other heads within the same Financial Year.
5. If the loss is not able to be offset against income from another source in the same financialyear, the loss can still be carried forward into future years and used against income arising out of House Property for the next eight financial years.
6. Only the Borrowed Funds holder can claim the tax benefits of interest on a home loan. It is not available for the Successor of the property.