When a Home Loan is availed, borrower has certain Tax Benefits on both Principal and Interest paid.

Principal Paid:  Under Section 80C of the Income Tax Act, a borrower can claim a deduction of Rs.1.00 lakh on the principal amount repaid during a year.

Interest Paid: Under Section 24(b) of the Income Tax Act 1961, a borrower can claim a deduction of Rs.1.50 lakhs on the interest paid on a home loan during a year.  This benefit is available for purchase of a Home/apartment/construction/re-construction/renovation.

In case of flats or house under construction, payments are released by Banks in stages.  In such cases, the tax benefit is not applicable as above.  Under Section 24(b) of the Income Tax Act, the borrower can claim a deduction for interest paid after the construction is completed in 5 equal instalments upto Rs.1.50 lakhs during a year.

PURCHASE OF PROPERTY IN JOINT NAMES:

All the property owners can claim tax benefits proportionately based on the ownership of the property.

MORE THAN 1 HOME LOAN:

Under Section 80C and Section 24(b) of the Income Tax Act, the same limit is applicable irrespective of the number of homes.  If the property is let out, there is no limit on deduction of the interest paid for that particular loan. In fact, the benefits are better on a second property.  If the first property is self-occupied and the second property is let-out, the entire interest paid on the loan can be deducted from the taxable income.  Further, 30% of the rent received is exempted from tax as Standard Deduction to meet repairs and maintenance of this particular property.  Further, taxes paid to municipality and property tax is also eligible for deduction.  Rent received from this particular property is taxable.

LOAN FROM OTHERS:  Tax benefits on Home Loans are eligible for Interest paid only, even if you have borrowed from relatives or close circles, whereas this benefit is not applicable for principal re-paid.

PLOT LOANS:  Tax benefits are eligible for a house/flat either completed or under construction. But there is no tax benefit for purchase of a Plot.
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