Home Loans and Income Tax Benefits: Part 2

How to Save Tax On Your Home Loan?

Before reading this article, read the first part of this Article, Tax Saving on your Home Loan: Part 1

In the above article, I have explained two tax saving laws for Home loans – Section 80C & Section 24B.

Well the Part 1 of this article was all about the basics of tax deductions on your home loan. But I have not mentioned any complicated scenarios in that article. But this article is all about the interest calculation for tax deductions if you own multiple properties in different cities of India.

This article is solely focused on the Interest calculation for tax deductions for multiple properties.

Home Loans and HRA

Most of the people have a false belief that they are not eligible for HRA if they have a Home Loan. But well, this is a Myth. The Truth is different. First of all, understand the HRA Rule for Tax Deduction.

The following conditions are needed to allow the HRA exemption:

• The rent must be actually paid by assessee.
• The rented property is not owned by the assessee. The section does not enforce any rules if the assessee owns any other property. So, that is irrelevant to the case.
• Principal portion of the home loans will not affect in any way to the HRA or interest payable.

So When you buy a Residential property on Home loan but for some reason don’t stay in that property but live in the rental property may be because your job is in other city or something else than in that case you are eligible for HRA Deductions.

Home Loans and Interest Payment

Let me explain you different scenarios for the Home Loan Interest Payment and the Tax Benefits on it.

Scenario: 1 If the person self occupied the property, then it is direct deduct from the income

Scenario: 2 If the property is rented out, then the annual value (income as rent) will be calculated for that property. The formula will be like this:Annual Value (Rental Income) – 30% as the standard deduction – Interest Payable on home loans= Income from house property.

Scenario: 3 In the above scenario, income from house property can be negative when the interest payable is more that rent received. In such scenarios the loss will be deducted from the total income. For the rented property there is no limit on theinterest payment. For example, the total rent received in particular year is Ra.100000. the same year interest paid on home loans is Rs.300000. Then Rs.200000 (300000-100000) can be deducted from the total income. This calculation is for the rented property.

Scenario: 4 If the property is vacant, not rented out and also not self occupied. The you will have to calculate the rental value based on the market and location of the property. That notional vale will be used for the calculation.

If you have any further queries than please do not hesitate to ask me by commenting on this post.