Home Loan: A way to reduce your taxable income
By Joseph Samson
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Interest paid is allowed as expenditure even if the property is self occupied and there is no gross annual value. Interest paid during the pre-construction period of the house is not eligible for deduction in that year. However the amount is deductible in five equal installments commencing from the year in which the house is acquired or constructed. The first installment is deductible in the year in which the construction of the property is completed and the balance four installments are deducted in the four subsequent years.

Installment paid on housing loan

Even the installments paid on housing loans are entitled for deductions. Under section 80C of the Income Tax Act, deduction up to Rs 1 lakh per year is available in respect of repayment of the principal amount of a loan taken to buy or construct a residential house. The repayment of the amount borrowed is deductible only if it is from Central Government, State Government, any bank that includes co-operative bank, LIC or NHB, a public sector company or co-operative providing housing finance, or where the employer is an authority or a Board or a Corporation or a public company or a public sector company or university or co-operative society.

Moreover payment made for stamp duty, registration fee and other expenses incurred for transferring the property in the name of the borrower are eligible for deductions. However, all these deductions should not exceed the limit of Rs 1 lakh.

The installments paid are eligible for deduction only if they are made during the ongoing financial year. They are not allowed on accrual basis unlike the interest deduction on housing loans.

Tax benefits on second house

If an individual plans to invest in a second home then this property is not treated like the first one which is a self occupied property. Here the borrower is only eligible for benefits of interest repayment of the home loan where as benefits of principal deduction are not given to the borrower. However there is no cap on the interest repaid unlike the Rs 1.5 lakh limit under Section 24 for self-occupied property but you need to add rental income, called annual value of your second house, to your income.

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