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The benefits that income tax authorities provide, as a result of servicing a housing loan from specified financial institutions, is documented over several sources. The following provides for some direction:
This section deals with deduction available u/s 24(b) - Interest paid on capital borrowed for purchase, construction, repair, renewal or reconstruction of property. That is, you are allowed to deduct an amount equivalent to the total interest payable on the housing loan from your taxable income within the same financial year, the maximum amount eligible for deduction if capital is borrowed on or after 1st April 1999 in the case of self-occupied property to Rs.2,00,000. The criteria being: a) Capital is borrowed on or after 1st April 1999 for acquiring or constructing a property. b) Acquisition or construction should be completed within 5 years (3 years, applicable up to the Assessment year 2016-17) from the end of financial year in which the capital was borrowed.
Please note that Interest of pre-construction period is deductible in five equal instalments. The first instalment is deductible in the year in which construction of property is completed or in which property is acquired. If Capital is borrowed for any other purpose, i.e. if capital is borrowed for reconstruction, repair or renewal of house property then the maximum amount of deduction is available Rs.30,000.
Assume taxable income of Rs 4 lakh, placing the assessee in the highest tax bracket.
Assume interest payment during the first financial year is Rs 1.60 lakh
Taxable income stands reduced to Rs 2.5 lakh (Rs 4 lakh - Rs 1.5 lakh being the maximum limit)
Total tax amounts to Rs 24,720 (tax of Rs 24,000 + Education Cess Rs 480+ SHEC Rs. 240)
Tax saved is Rs 46,350 (tax @30% on Rs 1.5 lakh plus 2% EC+ 1% SHEC as purchaser is in the highest tax bracket)
A deduction is available on repayment of principal during a financial year up to Rs.1,50,000, this aforesaid limit is within the overall limit of Rs.1,50,000 lakh specified in section 80C of the Income Tax Act.
Stamp duty, registration fee or other such expenses paid for transfer of such house property to the assessee is also considered under this amount.
This deduction is made from one’s Gross Total Income.
Every bank issues an Income Tax Certificate that serves as requisite proof to let you avail of tax benefits that accrue on repayment of a home loan.
This will typically contain the total amount of interest and capital repaid during the Year. The Income Tax Certificate is mandatory to claim the tax benefit in respect of self-occupied property.
You will have to file it with your tax returns. and submit this to your employer or Chartered Accountant to calculate your tax liability.
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