Home Loan Principal Tax Lock-in period

While there is no lock-in period for deduction claimed against interest payment on home loan under section 24(b) or section 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 stamp duty and registration 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 stamp duty 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 may increase considerably in the year of sale.

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