Income tax benefits of EMI on home loans

[N.Sukumar]

Very often tax payers take loans either for the purpose of buying a
house or a flat or a car or for some other personal purposes. They are
required to pay equated monthly instalments (EMI) of interest and
principal.

In some cases both the interest and principal are deductible for
purposes of income tax and in some cases it is not so deductible.
Hence in this article we have discussed the benefits of EMI under the
Income Tax Act mainly in relation to home loans. The section in this
article pertains to the Income Tax Act, 1961.

House should be ready for occupation:

One of the most important aspects to be remembered by a tax payer is
that the house or flat must be complete. If the house is not ready or
is still under construction, then no deduction either on principal or
interest would be allowable and permissible under the Income Tax Act.

Bifurcate EMI into Interest and Loan:

The next important aspect to be remembered by a tax payer is to
bifurcate EMI into two parts. They are (i) Interest and (ii)
Principal. This is because the deduction of interest as well as
principal is governed by different sections of Income Tax Act.
Therefore, this is the most important aspect to be remembered by a tax
payer.

Interest on home loan for acquisition and repairs:

Under the provisions of Section 24, a deduction of a maximum of Rs
1,50,000 every year is permissible in respect of interest on home loan
if the house is self-occupied. A loss up to Rs 1,50,000 of interest
can be adjusted against salary income or business income or income
from other sources. If a person has taken a loan for repair of house
or flat, a deduction of maximum amount of Rs 30,000 is permissible and
that too within the said amount of Rs 1,50,000.

Full interest deductible on let-out house:

If the house is let out by the tax payer, then the entire interest
irrespective of the amount is fully deductible under Section 24
against income from House Property. In case the interest amount is
more than the net rent, the loss under the heading "Income from House
Property" can be adjusted against other income. It can even be carried
forward in the future years

EMI instalment for acquisition also deductible:

Under the provisions of Section 80C the amount of EMI pertaining to
the payment of principal for acquiring the house is allowable within
the overall limit of Rs 1,00,000. This is for the purpose of acquiring
a house through DDA or other housing board like HUDA or any other
housing authority. The overall limit in this case is Rs 1,00,000.

Repayment of loan deductible:

Under the provisions of Section 80C (2) (xviii) deduction up to Rs
1,00,000 in respect of repayment of loan is permissible. The repayment
of the amount borrowed for home loan by the assessee is deductible
only if it is from Central Government or any State Government, or any
bank, including co-operative bank, or the LIC, or the NHB, or a Public
Sector Company providing housing finance, or any co-operative society
providing housing finance or where the employer is an authority or a
Board or a Corporation or any other statutory body or the employer is
a Public Company or public sector company or a university or an
affiliated Central Government or a local authority or a co-operative
society.

Besides, stamp duty, registration fee and other expenses for the
purpose of transfer of such housing property to the assessee is also
deductible under Section 80C.

N.Sukumar
Research Analyst