Revoking home loan tax deductions
There are various income tax sections under which you can claim deductions for expenses and investment incurred by you during the relevant financial years. Such deductions help you to bring downthetaxableincome for the respective fiscal and consequently reduce your tax liability.However, in many cases, a lock- in period is specified— under the section of the Act as well as the instrument against which you may have claimed a deduction. If you fail to observe the lock-in period, the deductions that you availed can be revoked.
Let’s read more about the lock-in periods that need to be observed in case you have claimed deduction against repayment of home loan principal amount.
THE DEDUCTION ON HOME LOAN
While there is no lock-in period for deduction claimed against interest payment on home loan under section 24(b) or 80EE, the section 80C(5) (relating to repayment of principal) of the Act stipulates that if you sell your house within 5 years from purchase or date of possession, the deduction claimed on principal repayment during previous years gets revoked. In this case, all the deductions claimed for home loan principal repayment under section 80C during the previous years too have to be clubbed together and added to income of the year of sale, and be taxed accordingly.
Let us assume you had bought a house in May 2014 with a home loan, and had claimed about Rs4 lakh under section 80C over the last 3 financial years—FY2014-15 to FY2016-17. If you sell the house now, the entire Rs4 lakh claimed earlier as deduction under section 80C will get added to your income for FY2017-18 and you will have to pay tax on the total income as per the income tax slab applicable to you.
Apart from home loan principal amount, the stamp duty and registration fee paid for registration of property also qualify for deduction under section 80C in the year of purchase. If you had claimed stampdutyandregistration fee as deduction, you need to observe the 5-year lock-in in these cases too. If the property is sold before 5 years, the deductions claimed against stampduty and registration fee will get revoked and get added to the income of the year of sale and tax accordingly.
So, before you decide to sell your house, keep the lock-in criteria in mind. Else, your tax liability mayincrease considerably in the year of sale.
Deductions help you to bring down the taxable income