It will be hard to find a person who has not been tempted to buy real estate in India at least once during his life time. And this is being put very moderately as when it comes to real estate decision, you could be any of the millions- consumer wanting to buy for own usage, whether it’s the first house or upgrading your property or maybe as an investment.

And with housing loan now easily available, it even makes it better. The goal of buying your dream house comes closer and becomes more of a reality. And on top of it, if you are getting some tax breaks on buying the property, it just becomes an icing on the cake.

The housing loan repayment is converted in an EMI (Equated Monthly Installment) wherein every month you pay an equated installment spread over the tenure of the loan. The, EMI, thus is a function of the loan amount, tenure of the loan and rate of interest (borrowing cost).

There are two components of housing loan- Principal Repayment and Interest Repayment. Let’s understand how we can optimize our tax benefits on housing loan.

There are various sections under the Income Tax Act which cover both these components separately.

Sec. 80C of the Income Tax Act is a broad section which governs deductions in respect of certain payments made and also includes the principal repayment of residential housing loan as one of them. The house property should be used for the purpose of self-occupation. However, if the assesse city of employment is different from the city of purchase, in that case also the deduction is available. The section provides that in computing the total income of an assesse, deduction shall be provided subject to a ceiling of Rs.1.50 lakh on the aggregate amount of such payments.

Section 80EE of the Income Tax Act is another section available only for an Individual assesse. The following conditions are to be satisfied-

• It should be the first property purchase i.e. the buyer should have never purchased any house before this purchase.

• Value of the property should not be more than Rs.40 lakh.

• Loan taken by individual to buy such property should not be more than Rs.25 lakh.

• On the date of sanction of loan individual should not own any other residential house property.

• For this purpose, loan should be sanctioned between 01.04.13 to 31.03.14.

Assesse can take deduction u/s 80EE on interest payable on housing loan up to Rs.1 Lakh in A.Y.2014-15. He can also claim deduction in two assessments year i.e. if whole amount of interest payable up to 1 lakh is not claimed as deduction in A.Y.2014-15 then remaining balance amount up to 1 lakh can be claimed in A.Y.2015-16. Total deduction under this section shall not be more than 1 lakh.

Section 24(b) of the Income Tax Act allows deduction of Interest on Borrowed Capital from House Property income –

The interest paid is treated as an expense and is allowed as deduction subject to the below mentioned ceilings. If the acquisition or construction of the house is before 01/4/1999 then the deduction amount will be limited to Rs.30, 000. And if it is on or after 01/4/1999 then the deduction amount is limited to Rs.2, 00,000.

The acquisition or constructing of the house should be completed within 3 years from the end of the FY in which the capital was borrowed.

In case there is interest of the period prior to completion of construction- As it may happen, that money is borrowed earlier and acquisition or completion of construction takes place in any subsequent year. And during this course the interest becomes payable. In such a case interest paid/payable for the period prior to the previous year in which the property is acquired/constructed will be aggregated and allowed in five successive financial years starting from the year in which the acquisition/construction was completed.

And in case of joint ownership, both the owners can apply for the loan and can then claim the above benefits separately.

Surya Bhatia, Managing Partner, Asset Managers

Surya Bhatia is a qualified Chartered Accountant and promoter of wealth boutique firm Asset Managers. Over the last 16 years, the firm has helped individuals and Small & Medium Enterprise (SME) to create, manage and grow their assets. He regularly appears on popular personal finance shows and writes for leading financial dailies.