The current market conditions are good for those looking at investing in a residential property. Many good deals are available in the market. Many new housing projects are being launched by developers with attractive and affordable prices. Also, the housing loan interest rates are low. Attractive property rates together with low interest rates on housing loans and tax benefits make property investment a good value proposition for property buyers.
A home loan attracts a significant amount of saving from income tax. Home loan borrowers can claim a deduction of up to Rs 1.5 lakhs from their taxable income against the interest paid on a housing loan. The repayment of the principal amount of a home loan is eligible for an income tax rebate up to Rs 1 lakh under Section 80C. Therefore, a home loan brings a significant tax incentive for the borrowers, especially for those in the high taxable bracket.

Claiming IT rebate

According to the Income Tax Act, only those who have taken a housing loan from a recognised financial institution and solely or co-own the property can claim rebates from IT.

Tax deductions can be claimed upto a maximum of Rs 1.5 lakhs under Section 24 for the interest payments on housing loans. The interest on home loans taken for repairs, extension or reconstruction of an existing property also qualifies for the deduction of Rs 1.5 lakhs. One can also claim rebate under Section 80C for the principal amount payments made against a housing loan. It should be noted that the upper limit of Section 80C is Rs 1 lakh and it includes all tax saving instruments, for example, provident fund, life insurance policies, tax saving bonds etc.

Income tax and HRA

Many people have this question - is it possible to claim HRA benefits as well as home loan rebate/deductions under the income tax. The answer to this question depends on the situation and should be decided on a case to case basis with your employer or income tax advisor.

These are some typical situations:

Living in own house

If you are living in the house which you have bought with a loan, you will be eligible for tax rebate under Section 24 and Section 80C only. You will not be eligible for any tax rebate under the HRA clause.

Own home under construction

If you have taken a loan to buy a home but the home is under construction and hence you are forced to live in a rented place, you cannot claim income tax benefits on the housing loan. You can claim only HRA benefits till the date you get possession of your house. After that date you can claim the housing loan benefits and HRA benefits will stop. However, you can adjust the interest paid during construction period in subsequent years subject to your total limit of Rs 1.5 lakhs under Section 24.

Feasibility to occupy own house

Suppose your own home is in a different city than your work location or the home is in the same city but at a considerable distance from your workplace, you can claim the benefits of income tax rebate and HRA simultaneously.

Own house let-out

If you rent out your own house and live in a different rented place, you can claim the benefits of income tax rebate as well as HRA. However, the rent you receive would be added to your taxable income. Also, in case of rented property you can claim a flat deduction on account of repairs and maintenance at 30 percent of rent received minus property tax. The upper limit of Rs 1.5 lakhs on interest deduction is not applicable in this case.