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Repaying home loan? MUST knows

Adroit | June 12, 2006

Anyone repaying a home loan will be aware of the deduction under Section 80C.

If you have taken a loan for construction or purchase of a residential home, you can claim a deduction with respect to the principal repayment of the loan. This is available under Section 80C of the Income Tax Act.

Of course, you must also be aware that all available deductions in this section (and Section 80CCC that cover premiums on life insurance) are subject to a maximum of Rs 1,00,000.

Here we look at some crucial aspects you might have missed. In Paying interest on home loan? 5 MUST knows, we spoke about issues relating to payment of interest on your home loan. Here we discuss the principal repayment.

Property under construction?
No Section 80C benefit

You can only get the benefit starting from the Financial Year in which the home is completed. Of course, if you have purchased an already constructed residential property, you can start claiming the deduction from the year of purchase.

If the home is still under construction as on the last date of the FY, then no tax benefit can be claimed on the amount of loan repaid during that FY.

Let's say you took a home loan last FY (April 1, 2005 to March 31, 2006) but the home was not completed in this time frame. You will get no benefits under Section 80C during this year, even if you are repaying the principal.

If the construction is complete this FY (April 1, 2006 to March 31, 2007), then you will get the deduction for this year.

So, the tax benefit on the repayment during that year (April 1, 2005 to March 31, 2006) is gone for good. It cannot be reclaimed in the year when the home is finally constructed.

Taken a loan from friends or family?
No deduction on repayment of loan

For claiming a deduction under Section 80C, the loan should have only been taken from:

- A bank

- A housing finance company like HDFC

- National Housing Bank

- Life Insurance Corporation of India

- An employer. But the employer can only be a university, college, a public company, a public sector company, local authority, a corporation/board/body established by Central/State Act or co-operative society 

- The central government or any state government (this is generally applicable when you are employed by the central/state government)

So, if you have taken a loan from friends/relatives, this repayment will not qualify for a tax deduction. Also, no deduction if the employer is a private limited company.

But, if you took a personal loan from a bank and utilised it towards the purchase/ construction of a residential home, then it would qualify for a tax deduction under Section 80C.

Buying two homes with two loans?
Deduction still available on both

Let's say you have two residential homes and you have taken a home loan for each.

In that case, the tax deduction can be claimed on repayment of both the loans. Deductions are available on multiple house properties and loans. However, they are all still under the Rs 1,00,000 limit.

Sold your home within five years of buying?
The tax man frowns!

Let's say you sold your home within five years from the end of the FY in which you got possession.

For example, let's say you bought a home in November 2004. The end of that financial year is March 31, 2005. And the property was sold before March 31, 2010. The period from March 31, 2005 to March 31, 2010, would be five years.

Then, all the deduction you claimed during these five years, will be considered as your taxable income of the year in which this sale takes place.

Remember Section 88? It was valid till FY 2004-05 and was then replaced by Section 80C. Let's say you claimed a rebate under this section. Then, the total amount of rebate claimed will be added to your tax payable for the financial year in which the sale takes place.

ADROIT is a Pune-based firm that specialises in providing domestic and international tax services to salaried individuals and professionals. They can be reached at

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Number of User Comments: 5

Sub: Can I do this ?

Hello, Have one doubt in the housing loan, would appreciate if you can sort it out: While taking home loan, let\'s say if in my ...

Posted by query

Sub: housing loan

I have 2 qus. 1) I am a co applicant of the housing loan in which my father is the applicant. whether I will get ...

Posted by Saumya ranjan ray

Sub: Information printed wrong

I think a person who has paying EMI for home loan can claim for Principal part of EMI even if the house is not completed ...

Posted by Saurabh Jain

Sub: Great article

very informative article ... good work

Posted by Vasantha Krishnamurthy

Sub: Sec 24

A good article but don't you think any discussion on Home Loan is quite inconclusive without discussion of Sec 24. This where the maximum benefits ...

Posted by sb


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