Tax deduction u/s 80C for Installment payment towards the house property or repayment of housing loan

Section 80C of the Income Tax Act, 1961 deals with deductions in respect of certain payments during the previous year from the total income of an Individual or HUF subject to a maximum of Rs.150000.

Instalment payment towards the property loan or repayment of housing loan is one of the specified schemes/payments for which deduction is available from the total income.

Repayment of housing loan – The repayment of housing loan is eligible subject to the following –

Loan for the purpose of purchase or construction of residential house property:

• The loan must be taken towards the purchase or construction of residential house property only. (This means, loan towards commercial/industrial purpose is not eligible)
• The loan for the purpose of purchase or construction only. Suppose, the loan is taken as mortgage loan on the existing house or loan towards renovation or repair of the existing house then it is not eligible for deduction u/s 80C.

Repayment of Loan from housing finance companies or banks or institutions

• The principal repayment is eligible for deduction u/s 80C
• Repayment of loan from central or state government, any bank (private or public), cooperative bank or society, LIC, housing finance company, any public company, any employer, can be claimed as deduction.

Deductions towards other payments

Instalment Payment

• Any instalment or part payment of the amount due under any self-financing or another scheme of any development authority, housing board or other authority engaged in the construction and sale of house property on ownership basis
• any instalment or part payment of the amount due to any company or co-operative society of which the assessee is a shareholder or member towards the cost of the house property allotted to him

Stamp Duty

• Stamp duty, registration fee and other expenses paid at the time of purchase of the house property.
• However the admission fee, cost of share and initial deposit which a shareholder of a company or a member of a co-operative society has to pay for becoming such shareholder or member can’t be claimed.

FAQ

Ms.Ramana has taken a housing loan to construct a house and let out the property to a company for a commercial venture. Can she claim deduction u/s 80C towards the repayment of housing loan?

Answer – She has met twin conditions for availing the deduction, i.e., (a) construction of house property (b) housing loan. Whether the residential house property is let out to company or commercial venture is immaterial, when both the requirements are met.

Suppose, it is a commercial property with a housing loan (you may get it from the bank!), you can’t claim the deduction. Similarly, a residential house with a mortgage loan or loan for renovation also can’t be claimed as a deduction.

Mr.Rajesh has claimed deduction u/s 80C towards repayment of housing loan. The house for which the loan was taken purchased in 2013 and now he intends to sell this property. Suppose, he decides to sell this property, will there be any implications on the deductions claimed in the previous years?

Answer – Yes. As per Section 80C(5)(iii), in case where the house property is respect of which a deduction has been allowed is transferred before the expiry of 5 years from the end of financial year in which the possession of such property is obtained, then no deduction shall be allowed in respect of the previous year in which the transfer is made and the aggregate amount of deduction allowed in earlier assessment years shall be deemed to be the income for the assessment year in which the transfer is made.

Mr.Kumaresh has taken a housing loan towards the construction of the house. While the house is under construction, he has repaid the principal loan amount of Rs.1 lakh. Can he claim deduction u/s 80C?

The benefit u/s 80C cannot be extended to cases where payments have been made before the completion of the house. Similarly, the amount paid in instalments before the completion of the house also can’t be considered for tax exemption.

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