Income Tax Exemption on Housing Loan
Tax rebate on home loans means that you can benefit and save significant part of your tax liability if you have taken a home loan.
Interest paid on the home loan
In the budget presented on 10th July 2014 the interest limit on housing loan has been increased from Rs 1.5 L to 2 L for claiming income tax exemption.
As per Sec 24(b) of the Income Tax Act, 1961 in India a deduction up to Rs. 2,00,000 can be claimed as tax exemption on housing loan. This deduction is claimed towards the total interest that we pay on the home loan towards purchase or construction of house property while computing the income from house property.
The interest payable before you acquire home or start the construction work would be deductible in five equal annual installments commencing from the year in which the house has been acquired or constructed.
In case of self- occupied property, housing loan tax benefit is allowed only for one such self – occupied property. The interest towards home loan taken for purchase, construction, repairs, renewal or reconstruction of house property is eligible for deduction under section 24(b).
Principal repayment of the home loan
As per the newly introduced Sections 80C read with section 80CCE of the Income Tax Act, 1961 the principal repayment up to Rs. 1,50,000 on your home loan will be allowed as a deduction from the gross total income subject to fulfillment of prescribed conditions.
Let us consider a hypothetical example.
As per Finance ministers budget speech on 10th July 2014
Your taxable Income: Rs 8,50,000
Principal repayment for the year 2014-15 : Rs 1,10,000 and Interest payable for the year: Rs 2,60,000
Total Deductions allowed: Rs 3,10,000 (Rs 2,00,000 towards interest payable & Rs 1,10,000 for principal repayment of the loan under revised section 80C)
Thus, your taxable income will reduce to Rs 5,40,000 (Rs 8,50,000 – Rs 3,10,000)