Deduction Dexterity Navigating Home Loans with TaxBuddy A Section 24B Tale

Home Loan Benefits

• Yes, taking a home loan is advantageous. Home loan owners can claim a deduction of up to Rs. 2,00,000 on the home loan interest, applicable even if the house is vacant. In case the property is rented out, the entire home loan interest is deductible.

Principal Repayment Deduction Guidelines

• The deduction for principal repayment is available for up to Rs. 1,50,000 within the overall limit under Section 80C.

  • Conditions to Claim this Deduction:

  • The home loan must be for the purchase or construction of a new house property.

  • The house property must not be sold within 5 years from the time of possession.

  • Stamp duty, registration charges, and other expenses directly related to the transfer are also allowed as a deduction under Section 80C.

1. Enhanced Benefits with Section 80EE:

• Recently added to the Income Tax Act, Section 80EE allows homeowners with only one house property, at the time of the home loan sanction. The individuals must be first-time owners of the property, with a claim of Rs. 50,000. This deduction is over and above the Rs. 2,00,000 limit under Section 24 of the Income Tax Act.

2. Expanding Horizons with Section 80EEA:

• A new section, 80EEA, is added to extend tax benefits for interest deduction on home loans taken during the period from 1st April 2019 to 31st March 2020. However, individuals should not be entitled to a deduction under Section 80EE.

Optimize Joint Home Loan Benefits suggested by TaxBuddy Experts

• TaxBuddy facilitates tax optimization for couples planning to buy a new home with a loan. Joint owners, who are also co-borrowers of a self-occupied property, can individually claim a deduction on the home loan interest up to Rs. 2,00,000 and a deduction on principal repayments, including stamp duty and registration charges under Section 80C, within the overall limit of Rs. 1,50,000 for each co-owner. These deductions can be claimed in the same ratio as the ownership share in the house property.

Conditions:

• Owners have taken the loan jointly.

• Owners are co-borrowers for the loan.

Benefits of Taking a Loan as Co-owners:

• Increased loan eligibility.

• Ability to buy a bigger home.

• Higher tax benefits.

• Sharing the loan repayment amount.

Simplifying Joint Home Loan Tax Calculations

• Elaborating Taxbuddy’s solution with an example here-

  
  

• Example. Understanding Income Tax for Joint Home Loan:

  • Mr. Keshav Rao, a software developer, earns a salary of Rs. 20,00,000 p.a, and his wife, working in the same company, earns Rs. 15,00,000 p.a. They jointly own a property purchased for Rs. 35 lakhs, with a market value of Rs. 50 lakhs, having a 50:50 ownership share. Their monthly EMI is Rs. 40,000, with Rs. 20,000 going towards the principal and Rs. 20,000 towards the interest.

Solution:

This breakdown illustrates the computation of taxable income for Mr. Keshav Rao and his wife, considering various deductions under different sections of the Income Tax Act for their joint home loan.

Note:

If the interest paid is Rs. 4 lakhs or more, each owner can get Rs. 2 lakhs as a deduction under Section 24B.

For Example:

Keshav Rao and his wife bought a house on loan and paid Rs. 5 lakhs as interest. With a 50:50 share in the property, Keshav Rao can claim Rs. 2,00,000 as a deduction, and his wife can also claim Rs. 2,00,000.