FAQ on Housing Loan and Income tax benefit

Nov 17, 2009


Q-1 What are Income tax benefits of taking a housing loan under EMI Plan?

First Equated monthly instalment (EMI) amount is to be divided into
the principal and interest components. The repayment of principal
amount of the loan can be claimed as a deduction under section
80C up to a maximum amount of Rs.1 lakh. The repayment of the
interest portion of the EMI is also allowed as a deduction under
section 24 under the head “income from house property”
upto Rs.1,50,000/- for self occupied property and full amount
 in case of let-out property.

Q-2 If I buy a house jointly with my wife and take a joint
home loan, Can we both claim income tax deduction?

Ans:-Yes, if your wife is working and has a separate source
of income, both of you can claim separate deductions in your
 income tax returns.The repayment of principal amount of the
 loan can be claimed as a deduction under section 80C up to a
 maximum amount of Rs.1 lakh individually by each co-owner.

In cases where the house is owned by more than one person
 and is also self-occupied by each co-owner, each co-owner
shall be entitled to the deduction individually on account
of interest on borrowed money up to a maximum amount
of Rs. 1.5 lakh. If the house is given on rent, there is no
restriction on this amount. Both co-owners can claim
deductions in the ratio of ownership.

Q-3 My husband and I have jointly taken a home loan.
 He pays 75 percent of the EMI. What will be our individual tax benefits?

Ans: – As you have taken a joint home loan, both of you are
 eligible for tax exemption for your share of the EMI paid.
For claiming income tax deduction, the EMI amount is divided
into the principal and interest components.
The repayment of the principal amount of loan is claimed
 as a deduction under section 80C of the Income Tax Act
 up to a maximum amount of Rs. 1lakh individually by each co-owner.
The repayment of the interest portion of the EMI is also
 allowed as a deduction under section 24 of the Act,
 which is given under the head “income from house property”.
In case you are living in the house for which home loan is taken,
both of you shall be entitled to deduction in the ratio (3:1)
 on account of interest on borrowed money up to a maximum
of Rs. 1.5 lakh individually. If the house is given on rent,
there is no restriction on this amount and both co-owners
can claim deduction in the ratio of ownership- 3:1 in your case.

Q- I plan to buy a house by raising loans from friends and
relatives. Will I be eligible for tax benefit from all sources?

Ans: – Interest payment to friends and relatives can be
claimed u/s 24 but only against a certificate received
 from them. In the absence of the certificate, you would
not be eligible for the deduction. The recipient of interest
 income who issues the certificate is liable to pay tax on the
 interest income that he receives. As far as the principal
payments are concerned, they would not qualify for tax
 benefit as loans only from notified institutions and banks
are eligible for such deductions.