Housing Loan Principal and Interest Amount Tax Savings
As the time has arrived to file you income tax return most of us would be thinking of House loan that they have taken would save money. Some of us would think of taking house loan to have property and also to save Tax as there income would be under higher SLAB. We would like you all to know about the savings and calculation that will help you behind housing loan Principal and Interest.
Principal amount of the house loan is taken as part of 80C which includes Provident fund, PPF account, LIC etc and the maximum limit to save under section 80C is 1.5 lakh.
We prefer housing loan not because of Just the principal but because of the Interest that is paid under our EMI. Under section 24 the maximum amount that can be exempted against Interest for a self-occupied house is 2 Lakh rupees per year.
Now there are various circumstances under this and some of the points are highlighted below
- Claim is possible only if the possession of the house is completed. You cannot avail this facility if it was for a house under-construction, but a workaround is possible as mentioned below in point 3
- For joint-ownership the 1 Lakh 50 thousand rupees applies to each individual. So a husband and wife with a joint loan qualify for 3 lakh exemption on housing interest. Same rule applies for the principal amount. If the Principal and interest adds up the above figure. You can’t make double entry.
- If you have paid some amount as interest and got the possession the following year technically you cannot claim the amount paid due to point #1. but it can be exempted in five equal installments beginning from the year in which the property is acquired (possession).For example you paid 40K in Year Y, 45K in Y+1 and 45K in Y+2 and got possession in Y+3 then (40K+45K+45K)/5=26K can be claimed per year for the subsequent 5 years starting from Y+3(year of possession).
- Section 24 can be used even if you have taken a housing loan from your friends/relatives assuming that you have recorded the necessary transactions with your lender. So it’s NOT mandatory that your lender has to be a bank to be exempted from Section 24. The conflict here is if you have got a loan from other than a bank/financial institutions then you are not eligible for 80C.
To avail this benefit you need have a letter from your bank or financial institution giving all the details for the financial year. This can be shown earlier in the year to save TDS also otherwise you would have to claim back the amount deducted. So start planning to save Tax right knows.
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