Buying a home is a costing affair for any individual. Normally people borrow from banks and financial institutions in form of home loans. And as a result of this every year the taxpayers have to repay large amount of money in form of principal and interest. These payments on principal and interest can be used to save on income tax expenses under the Income Tax Act 1961 under sections and sub-sections 24, 80C and 80EE as follow:
Under Section 24 of the Income Tax Act 1961 (Deduction of Interest on Home Loan)
Under this section, taxpayers can claim deduction up to Rs. 2,00,000 from their taxable income on interest payment on their home loan on their self occupied property. But if the property is let out, taxpayers can claim deduction on the entire amount of interest component of the home loan. However, they have to satisfy the below conditions:
- The home loan had been taken for the purchase and construction of a property;
- The home loan was taken on or after 1 April 1999;
- The purchase or construction of the property was completed within 5 years from the end of the financial year in which the loan was taken.
Under Section 80C of the Income Tax Act 1961 (Deduction of Principal Amount)
Under this section, taxpayers can claim deduction maximum up to Rs. 1,50,000 from their taxable income on the payment of principal component on their home loan.
Under Section 80EE of the Income Tax Act 1961 (First Time Home Buyer)
Under this section taxpayers can claim deduction up to Rs. 50,000 from their taxable income on the payment of interest component of the home loan above the limit of Rs. 2,00,000 available under Section 24 Income Tax Act 1961.
Deduction on Pre-EMI Interest Payment
Under the Income Tax Act 1961, taxpayers can avail tax benefit on the pre-EMI interest payment. Taxpayers can claim deduction on pre-EMI interest only after the construction of the property has been completed. The total pre-EMI interest paid is deductible in 5 equal installments in subsequent years for next five years.