Most Common Queries Revolving Around Tax Savings

  1. Can one claim tax benefits if one plans to construct the house with the intention of selling it later?

If one sells the property within 5 years of possession then any tax deductions already claimed will be reversed. But the tax exemptions remains unchanged on the interest paid.

  1. Can tax deductions on home loans be claimed?

The owner of the property is eligible to claim tax benefits on home loans. In case the spouse is a co-borrower, then he/she can also file for tax deductions. In the case of a loan in joint name, all the parties can claim for tax deduction for their share of the loan they pay.

  1. Can one claim tax benefits if the property purchased is still under construction?

One cannot claim tax deductions for a property under construction, for that the construction has to be completed. Once construction is completed, one can claim an aggregate of interest paid for the period prior to the year of taking possession. It can be claimed in five equal instalments starting from the year in which construction get completed.

  1. Can one claim tax benefits on loans from friends or family?

One can claim for tax deduction under Section 24(b) only for the interest paid and not the loan amount in case of loan taken from family member or a friend. Subsequently, the friend or member of a family who has given the loan will have to provide with a certificate and will be liable to pay tax on the interest earned from the loan.

  1. Can one claim tax benefit on two home loans?

As a rule, the tax benefit can be enjoyed only on the house claimed as self-occupied. In case an individual owns more than one house then only one of them can be claimed as self-occupied property and all the other properties will be considered as a let-out property and will be taxed as per the tax slab applicable. The notional rent on your multiple houses will be added to your total taxable income.

  1. Can spouse claim income tax deduction if one buys a house jointly?

Yes, the spouses can claim separate deductions in their IT returns if both the spouses are employed and have a seperate source of income. Both can claim deduction under Section 80C up to rupees 1.50 lakh from their total taxable income.

If the house is jointly owned, each co-owner can claim deductions up to rupees 2 lakh on account of the interest on borrowed money.

  1. Is the Home Loan principal part of Section 80C?

Yes, home loan principal is part of Section 80C of the Income Tax Act. Under this section, an individual is entitled to tax deductions on the amount paid as repayment of the principal component on the housing loan. An amount up to rupees 1.50 lakh can be claimed as tax deductions under Section 80C. However, the tax benefit on the repayment of the principal amount can be claimed only after the house is constructed. The section does not allow deductions for the repayment of the principal component during the years the house was being constructed.

  1. Are there any other tax deductions one can claim with respect to interest payment on the home loan other than the interest under Section 24(b)?

Interestingly, one can also claim tax deductions in respect of the interest on the housing loan under Section 80EE of the Income Tax Act. Under this section, an individual is entitled to claim tax deductions up to a maximum amount of rupees 1.5 lakh during a financial year.

  1. Can one claim tax benefit on the principal repaid on a housing loan?

Yes, one can avail tax benefits on the principal amount repaid on the home loan from total income under Section 80C.

  1. What is maximum amount one can avail for deduction of interest paid on housing loan?

Under Section 24 of the Income Tax Act, an individual can claim tax deduction of the interest payment on the housing loan up to a maximum amount of rupees 2 lakh.

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