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Home Loan Tax benefit under Section 80C

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As explained earlier that housing loan EMI consists of Principal and interest. The principal portion of housing loan EMI paid in a financial year is eligible for tax benefit u/s 80C upto a maximum limit of Rs 1 lakh per year. Other Section 80C components for tax saving are PPF, ELSS, Life insurance premiums, NSCs, 5 year bank fixed deposit etc. The total cap of section 80C investment is Rs 1 lakh which is inclusive of this principal payment in housing loan.

But here is one condition; you can claim this section 80C benefit on principal home loan payment only in the case of self-occupied house.

Only exception is if the house is not in the city you work in.

For example: if you live in Delhi due to your job and the house that you are paying EMI for is in Chandigarh, than in that case you are eligible for the section 80C benefit on principal portion of the EMIs. Or you should be staying in that particular house to claim for Section 80C tax benefit.

Housing loan tax benefit u/s 24

The interest portion of housing loan EMI paid in a financial year can be claimed as deduction u/s 24 up to a maximum limit of Rs 1.50 lakh per year. Interest payment is considered as expense under the head "income from house property".

The best part in tax benefit under section 80C and section 24 with respect to housing loan EMI is that there's no limit on "Self occupied houses". Say for example you work in Delhi, but you have one house in Chandigarh and other in Mumbai, for which you are paying housing loan EMIs, You can claim benefit of Section 80C and Section 24 for both of houses under self-occupied category within the maximum limit u/s 80C which is Rs 1 lakh and u/s 24 which is Rs 1.5 lakh, combining the total principal and Interest payment of all the houses. Do note that both benefits can be claimed only after taking possession of house.

Some conditions to avail this benefit:

Maximum interest allowed in aggregate of Rs 1.50 lakh per year, if the following conditions are satisfied-

a) Loan is utilised for construction or acquisition of house on or before 1-4-99.

b) Construction or acquisition of house should be complete in maximum of 3 years starting from the end of financial year in which capital is borrowed.

One more interesting point here is that section 24 tax benefit can be claimed even if the loan is raised from friends, family or relatives. If you have good inflow of income and then by doing tax planning early in life you can create different tax files in the family and can use them for your own tax benefits. This way you can save on the interest payment to bank, and also be able to claim tax benefit on your own income. Do note that this benefit can only be claim against the certificate issued by the loaner and he has to pay tax on the interest received against this loan

Special tax incentive announced for people taking first home loan up to Rs 25 lakh in FY 2013-14 (Section 80EEE). In this scheme additional interest deduction of Rs 1 lakh is offered only for one year. If one could not exhaust the full Rs 1 lakh in 2013-14, then he can carry forward the balance to next year. Please note this is over and above the deduction of Rs 1.5 lakh and of course with many additional conditions.

Pre EMI interest

Pre EMI interest can be claimed in 5 equal installments starting from the financial year in which possession has been taken. For example you have paid pre EMI interest as under

Starting 2010-11 till 2014-15, you can claim PRE EMI interest deduction of Rs 1,80,000(20%) which comes to Rs 36000/-, along with the interest you pay in those years. But do note that total interest payment benefit should not exceed Rs 1.50 lakh in any financial year.

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