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How Much Interest On Home Loan Is Tax Deductible

Repayment of interest on home loan is tax deductible under section 24 of Income Tax Act of India. Section 24 falls under the domain of income from house property. There are two different sections in terms of tax deductibility of home loan interest:

Major Features of Relevant Income Tax Acts

The table below describes in brief the key features of tax deduction on home loan interests applicable after the Union Budget 2017.

Relevant Section

Scenarios

Deduction Available

Conditions

Section 24

Self-occupied property or Rented property

Upto INR 2,00,000

Home must be purchased or constructed within 5 years

Section 80EE

For first time home buyers

(This deduction is applicable over and above the deductions as per section 24)

Upto INR 50,000

1. It pertains to the 1st house property purchased for an individual

2. Value of the house should not be more than INR 50 Lakhs and the home loan taken for it should not be more than INR 35 Lakhs

3. Loan should be sanctioned within the financial year 2016-17

         

 

Above provisions are only for the repayment of interest on home loan. Repayment of the principal amount of home loan is tax deductible under Section 80C. The home loan interest rates are not considered for these provisions but the home loan should be taken from a financial institution or a housing finance company. The Income Tax Act does not consider the home loan interest rates as the judging criteria for the above provisions.

Other conditions for tax deduction on home loan interest

If you are able to meet the conditions of both the sections, the benefits of both can be claimed. You can initially exhaust the deduction limit for Section 24 and then go on to claim further deduction of up to INR 50,000 under Section 80EE

Before the Union Budget 2017, there was no limit on the deduction of interest on home loan if the home loan pertained to the rented property. However, the scenario has changed now. After Union Budget 2017, for a rented property, interest on the purchase of a home loan needs to be deducted from the rental income. However, for the interest on home loan pertaining to self-occupied property, there is no rental income but still the deduction for interest on home loan is available to the assesse.

An individual can only have one self-occupied home and if a person is not able to live in his/her self-occupied property due to his/her business, profession or job in some other city, then the property could be deemed to be a self-occupied property.

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