Do I get a tax benefit on the loan?
Yes. Resident Indians are eligible for certain tax benefits on principal and interest components of a loan under the Income Tax Act, 1961. Interest repayment of 1.5 lacs p.a. can get you a tax saving up to about Rs. 50,490 p.a. Moreover, you can get added tax benefits under Sec 80 C on repayment of principal amount up to 1 lac p.a. that can further reduce your tax liability by about Rs. 33,660 p.a. You are advised to check with your tax consultant for the latest changes in tax laws.
Do I get deduction on interest?
Under Section 24, any interest paid on the money borrowed to purchase, construct, repair, renovate or reconstruct the property is allowed as a deduction. The entire amount of interest paid is allowed as deduction if the loan is taken to purchase, construct, repair, renovate or reconstruct a property that is let out.
A maximum deduction ofRs.30,000 is allowed to the tax payer in respect of interest paid if a self-occupied property is acquired, constructed, repaired, renovated or reconstructed with borrowed money.
If the loan is taken after April 1, 1999, to purchase or construct a self-occupied house, an enhanced deduction of 1.5 lacs is allowed, only if the purchase or construction is completed within a period of three years from the end of the year in which the loan is taken.
Do I get deduction on principal?
Under Section 80C of the IT Act, deduction is available in respect of repayment of the principal amount of a loan taken to buy or construct a residential house. Under this section, a maximum deduction of 1 lac is allowed per year.
You can also claim deduction under Section 80C towards payment made for stamp duty, registration fee and other expenses for the purpose of transferring the property in the name of the assessee. All these deductions however should not exceed the overall limit of 1 lac.
However, deduction under Section 80C is not available in respect of payment made towards the cost of any addition, alteration, renovation or repair carried out after the issue of the completion certificate.