Your home can is not your shelter only it can reduce your tax burden too. There is only 3 months of time to end of this Financial year, it is time to start planning your tax saving strategies. Your house can also be used to reduce the tax liability to a some extent. Under Section 24 of the Income Tax Act, interest paid up to Rs.2 lakhs per annum & under section 80C Rs.1.5 Lakhs on a home loan & can be set-off from salary or business income, for a self-occupied property. Further if you have got your house rented than there is no limit on Interest paid, you can claim the actual interest paid, no matter what is the Rent amount. The interest amount is eligible for deduction even if you took the loan for reconstruction / renewal/ repair of your house.
Loan for construction eligible for deduction
A loan availed for the construction of a residential property, purchase of a residential property, extension of an existing house, and major repairs and renovation of a house are eligible for tax benefits. Under Section 80C of the Income Tax Act, a home loan borrower can claim a deduction of up to Rs.1.5 lakh from his taxable income on repayment during the year along with specified savings instruments like provident fund.
All co-owners eligible for deduction
In case there are co-owners to a property, each of them can claim tax benefits. both of you are eligible to claim the same amount of deduction u/s 80C for the principal paid 7 u/s 24 for the Interest amount paid. Therefore your total deduction would be Rs.7 lakh for a single home loan. This brings down the family’s total tax liability. However, co-ownership is mandatory to avail of tax benefits.
Pre-EMI qualifies for benefit
The entire pre-EMI interest amount (the interest paid during the construction period ) is allowed as a deduction under Section 24 of the Income Tax Act equally over five years (20 percent of total interest paid per annum), starting from the year in which the construction is completed.
However, if one avails a loan only for a land purchase, he is not eligible for any tax benefits. In the case of a composite loan (for land and construction) and the house construction is completed within three years, only after completion of the construction will one be eligible for the tax benefits.