Tax benefits you can avail on your home loan

However, deduction on home loan interest cannot be claimed when the house is under construction

Who knew the new house property you just purchased could cut down your tax bill significantly this year? There are several tax benefits attached with the purchase of your first property on a home loan. Submit the home loan interest document to your employer or claim it directly on your income tax return for FY 2014-15.

Deduction on home loan interest

The entire interest paid on home loan can be claimed as a deduction for a house that is on rent. When the house taken with a home loan is occupied by the taxpayer or his family, or is left empty, then the interest paid can be claimed as a deduction up to Rs 200,000.

For this though, you must meet three conditions:

• The loan taken must be for purchase or construction of new house property
• The loan must be taken on or after April 1, 1999
• The purchase or construction must be finished within three years from the end of the financial year in which the loan is taken

Note that deduction on home loan interest cannot be claimed when the house is under construction.

Deduction on principal repayment

Principal repaid on your home loan can be claimed as a deduction under Section 80C, subject to a maximum limit of Rs.1,50,000. Note that if you are claiming this deduction, you cannot sell the property in five years. Doing so would add back the principal repayment amount back to your taxable salary.

Stamp duty and registration charges

Did you buy a house between April 2014-March 2015? Stamp duty, registration charges and other expenses directly related to transfer of the property can be claimed as a deduction under Section 80C. This is again subject to a maximum limit of Rs 150,000.

Note that these can only be claimed the same year these expenses were made.

Special deduction for first-time homeowners

Did you buy your first home on a home loan between April 2013-March 2014?

Section 80EE added to the Income Tax Act provides first-time homeowners tax benefit of up to Rs 100,000.

Make sure you meet the conditions listed below to claim this deduction in your income tax return. Also note that this is the last year in which you claim this tax benefit.

• You must be a first-time home owner
• Your home loan does not exceed Rs 25 lakh
• The property value must not exceed Rs 40 lakh
• Loan must have been sanctioned between April 1 2013 and March 31 2014
• No other house is owned by the taxpayer on the date the loan is sanctioned

Property taxes paid and 30% standard deduction

Have a house that’s on rent but not on a home loan? There’s tax relief for you too. You can subtract property taxes from your rental income and get a 30 per cent standard deduction.

This is however not applicable to self-occupied house, irrespective of whether the property was built with a home loan or not.

Bonus: House rent allowance

Although this is not directly to home loan, if you are receiving HRA as part of salary, and you are repaying on your home loan, you can claim both the tax benefits in your income tax return.

Photograph: nikcname/Creative Commons

Mridhula Raghavan works as a content strategist for www.cleartax.in. www.cleartax.in is India’s largest Income Tax e-filing website for individuals and businesses.