Tax Deduction in Real Estate

Real Estate investments are associated with large capitals which usually need home loan backing. In case you do not need a home loan still it is a better option to avail for one as it not only improves your liquidity but also helps you gain income tax benefits.

Few tax benefits you can claim when you avail a home loan are:

Deduction on EMI (contributing to principal amount): 

Law pertaining to deduction-

Section 80C of the Income Tax Act

Benefit-

• EMI (equated monthly instalments) which contributes towards the payment for the principal of the loan borrowed can be claimed for deduction.
• Applicable only if you are the owner and the co-borrower of the loan.
• Every year, a maximum of Rs 1.5 lakh can be claimed for deduction.

Deduction on stamp duty and registration charges: 

Law pertaining to deduction-

Section 80C (for stamp duty and registration charges) & Section 24 (for various fees in sanctioning home loan) of the Income Tax Act.

Benefit-

• Payment of stamp duty and registration charges can be claimed for deduction.
• But these can be claimed only in the year they are paid i.e. immediately after getting registration done.
• Service fees, processing fee, or any prepayment fees paid for sanctioning a home loan can be claimed for deduction.

Deduction on interest amount: 

Law pertaining to deduction-

Section 24 of the Income Tax Act

Benefit-

• The interest component of the EMI (equated monthly instalments) can be claimed for deduction if you are paying EMI for a home loan.
• Applicable only if you are the owner and the co borrower of the loan.
• Every year, a maximum of Rs 2 lakh can be claimed for deduction.

Deduction on Under construction interest: 

Law pertaining to deduction-

Section 24 and Section 80C of the Income Tax Act

Benefit-

• You can claim the interest incurred in under construction phase by adding the entire amount and claiming deduction in 5 equal installments.
• Total deduction cannot exceed Rs 2 lakh and the house must be used by the owner itself for claiming this tax benefit.
• Applicable only in the financial year where possession of home is received or construction is completed