Section 24 of the Income Tax Act lets homeowners claim a deduction of up to Rs. 2 lakhs (Rs. 1,50,000 if you are filing returns for last financial year) on their home loan interest if the owner or his family reside in the house property. The entire interest is waived off as a deduction when the house is on rent.
Continue reading to understand how it can be claimed.
Siddarth works in Gurgaon in an IT company. He recently purchased a house in Pune. He purchased this property jointly with his father. Siddharth has taken a loan of Rs 30 lakhs and his father is not a co-borrower in this loan. His parents live in this house currently.
Siddarth's EMI of Rs.27,000 began in August 2014.
Siddarth's income from house property is zero because his parents live in it.
Let's see how Siddarth can save on tax on his home loan when he files his income tax return this year.
The total of EMIs for the financial year 2014-15 is Rs. 2,16,000 (27000 X 8 months). This amount includes a payment of Rs.10,000 towards principal and Rs 2,06,000 towards interest.
Siddarth's income from house property is zero because his parents live in it. The I-T Department considers it a self-occupied house.
Since there is no income from his self occupied house property and as a result of claiming a deduction towards interest of Rs. 2,00,000 under Section 24, Siddarth makes a loss under the head house property in his Income Tax Return.
Siddarth can subtract this loss from his taxable income this year. He can also claim his principal repayment amount of Rs. 10,000 under Section 80C. But he cannot sell this house for a period of 5 years, which ends on 31 March 2020.
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