I assume those who have taken housing loan would have considered the tax benefits while taking the decision to buy the house through loan. Still, I feel there are some issues which are ignored causing claim of wrong deductions in ITR. Let us understand those issues.
What is allowable as deduction?
The allowable deductions under 2 different sections are:
1. Housing loan Principal repayment can be claimed u/s 80C (commonly known as 1 lac saving). The limit of course is Rs. 1 lac maximum.
EMI has 2 components - Principal i.e. the loan itself and Interest thereon. Usually the interest is higher in the initial years of payment and decreases over the years and the principal amount is lower initially and increases gradually.
2. Housing Loan Interest can be claimed u/s 24 upto a maximum of Rs. 1.5 lacs (Rs. 30K if the loan is received prior to 1-4-99) if the house is self -occupied (i.e. you / your family is staying in this). What if you are not staying in this? Even then this is considered as self-occupied, if you have only 1 house and not rented this out.
3. There is no limit for claiming interest u/s 24 if the house is rented out.
What are the prior conditions for claiming these deductions?
1. First condition is that the possession of the house should be received in the financial year in which the deductions are claimed. If the housing loan is received in year 1 and the possession is received in year 2, the Housing Loan Principal cannot be claimed at all. Whereas the Interest can be accumulated and all interest upto the date of possession can be claimed in next 5 financials years in equal installments in addition to the interest paid during these 5 financials years. This is subject to the limits of Rs. 1.5 lacs (or Rs. 30K) in case of self-occupied property.
2. Deductions are available only if it is actually paid and cannot be claimed if you have not paid the EMI i.e. in case you have defaulted / delayed some payments, the deduction is available only to the extent of amount paid.
3. Housing loan deduction are claimed and HRA deductions also availed. This can be claimed only subject to certain conditions if the house for which you are paying rent for claiming HRA benefits and the place of your own house for which the housing loan benefits are claimed are in the same city. It can be claimed without any issue if both the house as mentioned above are in different cities.
Common mistakes in claiming deductions
1. The deductions are claimed even if the possession is not received. This is incorrect and should not be availed.
2. The HRA deductions and housing loan both are claimed without fulfilling the condition mentioned above.
3. Joint housing loans payments are claimed by both the borrowers fully.Ideally it should be split in the ratio of payments made by each party or it should be claimed 50% by each party. In any case it should not exceed 100% of the payments made. That means no double benefits for the same amount.
4. Interest benefit is claimed only to the extent of Rs. 1.5 lacs even if the house is rented out. There is no limit for claiming deduction u/s 24. The calculation has to be done as per the Income Tax provisions.
Hope this given you enough idea to avoid these mistakes as these may haunt you in case your case is selected for Income Tax scrutiny.
What is allowable as deduction?
The allowable deductions under 2 different sections are:
1. Housing loan Principal repayment can be claimed u/s 80C (commonly known as 1 lac saving). The limit of course is Rs. 1 lac maximum.
EMI has 2 components - Principal i.e. the loan itself and Interest thereon. Usually the interest is higher in the initial years of payment and decreases over the years and the principal amount is lower initially and increases gradually.
2. Housing Loan Interest can be claimed u/s 24 upto a maximum of Rs. 1.5 lacs (Rs. 30K if the loan is received prior to 1-4-99) if the house is self -occupied (i.e. you / your family is staying in this). What if you are not staying in this? Even then this is considered as self-occupied, if you have only 1 house and not rented this out.
3. There is no limit for claiming interest u/s 24 if the house is rented out.
What are the prior conditions for claiming these deductions?
1. First condition is that the possession of the house should be received in the financial year in which the deductions are claimed. If the housing loan is received in year 1 and the possession is received in year 2, the Housing Loan Principal cannot be claimed at all. Whereas the Interest can be accumulated and all interest upto the date of possession can be claimed in next 5 financials years in equal installments in addition to the interest paid during these 5 financials years. This is subject to the limits of Rs. 1.5 lacs (or Rs. 30K) in case of self-occupied property.
2. Deductions are available only if it is actually paid and cannot be claimed if you have not paid the EMI i.e. in case you have defaulted / delayed some payments, the deduction is available only to the extent of amount paid.
3. Housing loan deduction are claimed and HRA deductions also availed. This can be claimed only subject to certain conditions if the house for which you are paying rent for claiming HRA benefits and the place of your own house for which the housing loan benefits are claimed are in the same city. It can be claimed without any issue if both the house as mentioned above are in different cities.
Common mistakes in claiming deductions
1. The deductions are claimed even if the possession is not received. This is incorrect and should not be availed.
2. The HRA deductions and housing loan both are claimed without fulfilling the condition mentioned above.
3. Joint housing loans payments are claimed by both the borrowers fully.Ideally it should be split in the ratio of payments made by each party or it should be claimed 50% by each party. In any case it should not exceed 100% of the payments made. That means no double benefits for the same amount.
4. Interest benefit is claimed only to the extent of Rs. 1.5 lacs even if the house is rented out. There is no limit for claiming deduction u/s 24. The calculation has to be done as per the Income Tax provisions.
Hope this given you enough idea to avoid these mistakes as these may haunt you in case your case is selected for Income Tax scrutiny.
These are my personal views and should not be considered as legal advise. You are requested to consult a professional before acting on this blog.
For any query / suggestion on my blogs, feel free to write to me at piyushsgarg@gmail.com.
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