Everyone wants to have a home to which they can call their own, where they feel secure and live peacefully with their family members. On the other hand, it is a great investment as being dedicated family leader you are adamant that you want to secure a home for your family, a place they can really be proud of, a property that you can have an established and vested interest in.

And most of the people who desire to have their own home take Home Loan (also known as housing loan, or a mortgage) in order to buy a property. But, Home loan doesn’t just provide you the fund needed for buying your house, it also provide income tax benefits for a longer duration.

There are two sections of the Income Tax Act,1961 which will allow you to get a deduction if you have taken a home loan. The two sections are here under.
• Sec 24(b) of the Income Tax Act, 1961
• Sec 80(c) of the Income Tax Act, 1961

But at the very outset you must understand the Equated Monthly Installment (EMI).

Equated Monthly Installment (EMI)

Once your loan application is sanctioned and disbursed, you receive entire loan amount. Then the Bank calculates your EMI based on the interest rates, total loan amount and the tenure of the repayment for the entire loan. EMI is simply the amount of money that is paid back to the lender (Bank) on a monthly basis. It is essentially made up of two parts, the principal amount and the interest for the home loan.
You repay the loan amount in small bits through the principal portion of the EMI and accordingly the outstanding loan amount (or the remaining loan amount) reduces every month by this amount.
Consequently, in initial, the interest component is very large and the principal component is very small. Every month, the interest component becomes smaller than the previous month and the principal component becomes larger than the previous month. And towards the end of the duration of the home loan, the interest component becomes negligible and the principal component becomes larger than the interest component.
Now, here is the Income tax treatment and deduction available for Home Loan for both the portions i.e., principal portion and interest portion.

Income Tax treatment of Principal Repayment of Home Loan

The principal portion of the EMI paid towards repayment of the loan can be claimed as deduction u/s 80C of the Income Tax Act, 1961 upto Rs 1 lakh each year irrespective of your tax bracket. But the only condition for getting the benefit of this deduction is that the home loan to be towards a property for self occupation.
The only exception is if the house is not in the city in which you are working that means if your’s city of employment is different from the city where you have purchased a home then you are eligible for this deduction.

One more important point is that for claiming this benefit there is no restriction on the number of houses but the only condition with this is that if any one of the house for which you are paying EMI is in your city of employment it should be self occupied as you have to satisfy the “self-occupied” rule too (with the allowed exception).

Income Tax treatment of Interest Payment of Home Loan

The interest portion of the EMI paid is treated as an ‘expense’ under the head ‘Income from house property’ and deductible under Section 24(b) from the total income of the assessee up to a maximum of ` 1.5 Lakhs per annum.

The interest amount would appear as a negative amount under the head “Income from House Property”, and would thus be deductible from your total income under Sec 24. Even if you have any other income from the house (like rent), that income would get reduced by the amount of interest paid (subject to the cap of Rs. 1.5 Lakhs).

There is no restriction of “self occupied property” and number of houses for claiming this benefit.
In case of Partial disbursement – Partial disbursement means payment of some part of loan amount by the bank. It is applicable if the property is under construction and payment made by the Bank depends on the stage of construction of the house.

In this case, you do pay a Pre-EMI interest instead of EMI. This Pre-EMI interest cannot be claimed as a deduction in the year in which it is paid. However, after the construction of the house ends and you get its possession, you can claim deduction for this interest under Section 24(b) in 5 equal installments, i.e., 1/5th for each of the five years after the end of construction period. This Pre-EMI interest should be claimed along with the interest component of the EMI under section 24 but, the overall limit remains Rs 1.5 Lakhs even in this case.

In case of joint home loan – If you have taken home loan in joint name then both of you can avail the tax benefit (for both principal repayment and interest paid). The tax benefit can be availed in the same proportion as the burden of EMI borne by both of you i.e., in the ratio of EMIs paid.

Payment before getting possession of the property – If you are paying EMI or disbursed entire loan amount before getting possession of the house, you would lose the principal repayment deduction u/s 80C as it can be claimed only after you get possession of the house. As said earlier, you can start claiming the income tax benefit of the principal amount u/s 80C starting from the financial year in which you get the possession of the house.

The interest component of the EMIs that you paid in this case should be treated similar to Pre-EMI interest (as explained above).