Availing a Home loan offers two way benefits. You get deduction for both principal and interest paid and at the same time you create your asset as well. Let us understand some basic facts in relation to deduction of home loan.
Equated Monthly Installment (EMI) and its Deduction
EMI (Equated Monthly Installments) is the amount of money paid to the lender on a monthly basis and it consists of two parts â€“ Principal and Interest.
Interest component is claimed as deduction u/s Sec 24(b) and Principal component is claimed as deduction u/s 80C.
Purpose of taking Home loan – Qualify for deduction
Interest paid for home loan borrowed for the purpose of purchase, construction, repair, renewal or re-construction of the house property qualifies for deduction.
Principal repayment of the home loan borrowed only for the purpose of purchase or construction of the residential house property qualifies for deduction.
Basis of Deduction â€“ â€œAccrualâ€ or â€œPaymentâ€
Interest deduction â€“ Accrual or Due basis.
Principal deduction â€“ Payment Basis means claimed only when the actual payment is made.
Interest Payment deduction and its Limit
Interest paid is deducted u/s 24(b) from the total income.
Deductible upto Rs. 1,50,000 â€“ If Home Loan is taken on or after 1.4.99 for acquisition or construction and such acquisition or construction is completed before 3 years from the end of the financial year in which capital was borrowed.
Deductible upto Rs 30,000 â€“ If Home Loan is taken prior to 1.4.99 or if Home Loan is taken on or after 1.4.99 but for repairs, renewals or re-construction of the house property.
The above said limit is only for self-occupied house property. So, in case of let-out or deemed to be let out house property, interest is fully deductible without any limit.
Principal Payment deduction
The principal amount paid towards the home loan can be claimed as deduction u/s 80C upto Rs. 1 lakh each year.
Pre-construction interest will be deducted in five equal annual instalments, commencing from the previous year in which the house is acquired or constructed.
Deduction in case of joint home loan
In case of joint home loan both the applicants can avail the tax benefit (for both principal repayment and interest paid) in the same proportion of EMIs paid. But, to claim deduction all co-owners must be co-applicants.
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