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December 3, 2022

First time home buyer? Know how you can claim up to Rs 5 Lakh as Income Tax deduction

by CA Shivam Jaiswal in Income Tax

First time home buyer? Know how you can claim up to Rs 5 Lakh as Income Tax deduction

Make the most of the various tax benefits available to you if you’re a first-time home buyer because this is your only opportunity. Here is a helpful advice that will enable you to reap the greatest tax advantages.

If you are buying a home for the first time, you are entitled to get income tax benefits on it under three sections — 

1) Section 80C

2) Section 24

3) Section 80EEA

The Income Tax Act ,1961 provides tax deductions on the interest and principal components of a home loan under several provisions, and the maximum tax deduction that can be claimed on a home loan is 5 lakh.

Section 80C – It allows a maximum deduction of Rs 1.5 lakh every year from the taxpayers total income, a borrower can avail deduction on the repayment of principal. The requirements stipulate that you can only take a loan from a financial institution that is regulated by RBI or from your employer, which can be either the central or  state governments, a public or private corporation, a university, or a cooperative society.

Section 24 – It permits a deduction of up to 2 lakh rupees on the interest paid for a house loan acquired for a self-occupied property, and it provides a deduction of the entire interest for a property that is let out. This deduction cannot be used until the house’s construction is complete. If there was any interest paid during the construction phase, it can be claimed in five installments after the completion of construction.

Section 80EEA – In addition to section 24, section 80EEA allows for an extra deduction of up to 1.5 lakh on the interest component.

A deduction for interest payments up to Rs 1,50,000 is available under Section 80EEA. This deduction is over and above the deduction of Rs 2 lakh for interest payments available under Section 24(b) of the Income Tax Act.

Following are some of the conditions for claiming deductions

  1. Housing loan must be taken from a financial institution or a housing finance company for buying a residential house property. The loan should be sanctioned during the period 1st April 2019 and 31st March 2022.
  2. Stamp duty value of the house property should be Rs 45 lakhs or less
  3. The taxpayer should be a first-time home buyer. The taxpayer should not own any residential house property as on the date of sanction of the loan.

Now, let’s take a hypothetical situation where you buy a house in April 2021 for Rs 50 lakh, and you borrow Rs 40 lakh, or 80% of the purchase price, as a loan from a financial institution (bank or NBFC), at a 20-year interest rate of 7%.

In the first year, you must pay a total of Rs 3,72,000, of which Rs 2.77 lakh is the payment for the interest component and Rs 95,000 is the payment for the principal component. Your monthly EMI would be approximately Rs 31,000.

If your annual income is Rs. 15 lakh, you are eligible for tax deductions of Rs. 95,000 (principal payment) under Section 80C, Rs. 200,000 under Section 24, and the remainder Rs. 77,000 in interest under Section 80EEA. The remaining Rs. 55,000 of Section 80C can be claimed from stamp duty payments.

How to claim tax benefits ?

When filing your income tax returns, you must include specific information in order to receive income tax benefits (ITR).

You can get instructions for filling out your income tax returns both offline and online by visiting the website incometax.gov.in.

As per news and media report , Submit your home loan interest certificate and EMI statement to your employer at the time of income tax proof submission with your Form 12BB. If you forget to submit these proofs to your employer, you can still claim the tax benefit at the time of filing your income tax return .

You are not obliged to provide these documents if you work for yourself. Keep the evidence of the claimed deduction in both circumstances for future reference in case the IT department has any queries.

Source

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