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Tax guide on housing deductions

A person owning a house property can claim various tax deductions from their income from house property. You may be paying municipal tax on the property or may have a housing loan and paying the EMI. You wish to claim deductions for all the expenses you incur against the income from the house property. You can also claim limited deductions on house occupied by you for your residential use.

This tax guide helps you to understand the tax deductions available on housing.

Deductions from house property:

A person owning a house property can claim various tax deductions from their income from house property. You may be paying municipal tax on the property or may have a housing loan and paying the EMI. You wish to claim deductions for all the expenses you incur against the income from the house property. You can also claim limited deductions on house occupied by you for your residential use.

1) Municipal Tax

The amount of tax paid to a local authority such as a municipality. Such tax is available as a deduction only against the actual amount of rent received or receivable. The deduction for municipal tax is not available for a self-occupied property.

Gross annual value (rent received or receivable) :                  XXX

Less: Municipal tax :                                                                     XXX

Net annual value :                                                                        XXX

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2) Standard deduction of 30%

The income from a rented property or let out property is also eligible for a standard deduction of 30%. The amount of the deduction is 30% of the net annual value of the property. You  can claim the standard deduction irrespective of the actual amount expenditure towards repairs and maintenance of the property.

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3) Interest on housing loan

The deduction for interest paid on housing loan is available from year in which you complete the construction of the property.

In the case of interest paid during the period when the property is under construction, such interest can be claimed in 5 equal proportions during the 5 years beginning from the year in which the construction is completed.

The interest deduction is subject to the limits mentioned below. The limit applies to the aggregate of the current year interest and pre-construction period interest taken together.

The balance rental income that remains after claiming standard deduction is eligible for deduction for interest on housing loan. In the case of a property that is let out, the entire interest paid is eligible for deduction subject to limit on carry forward of loss. In the case of interest payments in excess of the net rental income resulting in a loss, such loss up to Rs 2 lakh can be set off against income from other heads. The loss in excess of Rs two lakh is eligible for carry forward for the next eight years for set off against future rental income.

In the case of a self-occupied property, the interest deduction allowed is restricted to Rs 2 lakh per financial year. If your actual amount paid is less than Rs 2 lakh, then you can claim the actual amount as a deduction. The property should be purchased or the construction of the house property should be completed within 5 years from the end of the financial year in which the loan was borrowed. Otherwise, the borrower is entitled to a deduction of Rs 30,000 only.

The borrower should obtain an interest certificate from the lending bank or financial institution on the annual interest and principal payments during the financial year.

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4) Principal repayment

The principal amount repaid each financial year is also eligible for a tax deduction up to Rs 1,50,000. The deduction is under section 80C which also covers deductions for various tax saving investments and deposits. The stamp duty and registration charges are also eligible within the limit of Rs 1,50,000, in the year in which they are paid.

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5) Deduction for first time home owners

Section 80EEA:

A first-time home owner can claim an additional interest deduction of Rs 1,50,000 under section 80EEA if the following conditions are satisfied:

1. 1. The stamp value of the property does not exceed Rs 45 lakh
   2. The loan was sanctioned during the period 1 April 2019 and 31 March 2021
   3. The owner does not own any other property as on the date of sanction of the loan

An individual who claims deduction under section 80EEA is not eligible to claim deduction under section 80EE. The interest deduction is available until the repayment of the loan.

Section 80EE:

Also, in case of housing loan availed of during the financial year 2016-17, the home owner can claim an additional Rs 50,000 as interest deduction if the following conditions are satisfied:

1. 1. The stamp value of the property does not exceed Rs 50 lakh
   2. The amount of loan sanctioned does not exceed Rs 35 lakh
   3. The loan was sanctioned during the period 1 April 2016 and 31 March 2017
   4. The owner does not own any other property as on the date of sanction of the loan

The interest deduction is available until the repayment of the loan.

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6) Deduction for a joint owner and co-borrower

Joint owners of house property who are also co-borrowers can claim all the above deductions in their ownership ratio. For example, if A and B joint purchase a house property and also jointly apply for the housing loan, they can claim deduction for:

1. 1. Their share in the interest payment up to Rs 2 lakh for a self-occupied property.
   2. Their share in the principal repayment up to Rs 1.5 lakh under section 80C.

If one is just the co-owner but not the co-borrower of the housing loan, such person cannot claim the deduction. Conversely, if one is a co-borrower but not the joint owner of a property, the person is not eligible to claim deduction.

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7) Claiming HRA benefits

You may be living in a rented accommodation due to work related reasons etc., while you also own a house and pay the housing loan. In such a situation, you can claim the HRA exemption for the rent paid, and also claim deduction for interest and principal repayments of the housing loan. In case the house owned by you is let out, you can claim the deductions against the rental income, while you claim the HRA exemption for the rent paid by you.

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