The possession of the property
- To claim the deduction of Interest payment, the house must be completed and possession taken.
- However, for taking tax benefit on principal repayment, it can be taken from the year you start repaying the loan.
The Principal Repayment
- The principal repayment towards housing loan up to Rs.1,50,000 per year can be deducted u/s 80C of Income Tax Act from your total income.
- Please note that the maximum deduction u/s 80C towards insurance premium, contribution to provident fund, tuition fee, housing loan repayment etc all together is limited to Rs.1,50,000.
The interest paid on housing loan
- Interest paid during the year as per the interest certificate provided by the banker can be claimed u/s 24 and
- Interest paid during the construction (also called as pre-construction period) can be claimed in 5 equal installments from the year you take possession of the property.
- However the total interest which can be claimed is limited to Rs.2,00,000 per year.
Certificate from the banker
- This is a very important document which one should get every year. Your banker will issue Interest certificate which contains the information about principal repayment as well as interest payment during the year.
- Normally people obtain a provisional certificate at the beginning of the year. We suggest you to obtain actual interest certificate at the end of the year.
- The property must be registered in the Joint Name in order to avail the tax benefits for both the co-owners
- Each of the co-owners (husband and wife) can avail the tax benefit of Rs.1,50,000 per year towards housing loan repayment and Rs.2,00,000 per year towards interest payment.
- Even if the housing loan is in joint name, unless the property is in joint name, each of the co-owners can’t get tax benefits. For example. The property is in wife’s name but the loan is in both husband and wife’s name. In such case, only the wife can take the tax benefit.
Loan from friends or relatives
- You can claim the tax benefit on the interest paid to friends or relatives. You have to collect interest certificate from the person giving you the loan.
- The principal repayment, however, is not eligible for tax benefit u/s 80C
House Rent Allowance and Housing Loan Repayment
- Once the house is completed, you can claim tax benefit towards Interest payment as well as principal repayment. Even after the completion of the house, due to practical reasons (say, the house is in different city or different location in the same city) you continue to stay in a rented house, you can claim HRA benefits additionally.
- In the year of completion of the house, you can claim both. Suppose, the house/flat is completed in January, 2014, you can claim HRA benefit for the year as well as housing loan interest and principal repayment benefit.
Municipal Taxes, Interest and processing fee
- No tax benefit can be claimed towards payment of municipal taxes on self-occupied property
- No deduction is allowed for any processing fee or commission charged by the bank towards sanctioning housing loan
- Interest on housing loan is deductible on ‘accrual’ basis. It can be claimed on yearly basis, even if the interest is not actually paid during the year.
Loan towards Repair or Renovation of existing house
In case you take a loan towards repair or renovation of existing house, you can avail tax benefit towards the interest paid on such loan up to a maximum of Rs.30,000 per year. As a proof of payment of loan, you have to obtain a certificate from the banker. Also as a proof of repair or renovation, keep the relevant bills or invoices.