Income Tax Deduction for Purchase or Construction of House

The Income Tax Act allows a taxpayer to claim a deduction from the taxable income in case the taxpayer has purchased or constructed a house. To allow taxpayers to claim the deduction, Section 80C is available in the Act. The section allows taxpayers to claim a deduction for a variety of applicable circumstances. The deduction is available for payments made by an assessee for purchase or construction of a residential house. The deduction under Section 80C can be made from the head Gross Total Income. The deduction will be admissible only if the Net Annual Value (NAV) of the house property is assessable to tax under the head ‘Income from House Property’. The NAV of a house property is a concept under

Income Tax law which is used to determine the amount of tax which a taxpayer is liable to pay in connection with the ownership of the house. In this article, we look at Section 80C deduction for purchase or construction of a house.

Deductions Eligible under Section 80C

The following types of payment made by the assessee in the financial year towards purchase or construction of a residential house are eligible for deduction under Section 80C:

Instalment or part payment of the amount due under any self-financing or other schemes of any development authority, housing board or other authority engaged in the construction and sale of house property on ownership basis.
Instalment or part payment of the amount due to any company or cooperative society of which the assessee is a shareholder or member towards the cost of the house property allotted to him.
Stamp duty, registration fee and other expenses for the purpose of transfer of such house property to the assessee.
Repayment of an amount borrowed by the assessee for purchase or construction of residential house from any of the following sources:

Central Government or any State Government.
Any bank, including a cooperative bank.
Life Insurance Corporation of India.
National Housing Bank.
Housing finance company registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes.
Any company in which the public are substantially interested or any co-operative society, where the company or co-operative society is engaged in the business of financing the construction of houses.
The assessee’s employer where the employer is an authority or a board or a corporation or any other body established or constituted under a Central or State Act.
The assessee's employer where the employer is a public company or a public sector company or a university established by law or a college affiliated to such university or a local authority or a co-operative society.

Expenses NOT Deductible

The following types of expenses are not eligible for deduction under Section 80C:

Admission fee, cost of share and initial deposit which a shareholder of a company or a member of a co-operative society has to pay for becoming such shareholder or member.
The cost of any addition or alteration to, or a renovation or repair of, the house property which is carried out after the issue of the completion certificate or after the house property or any part of the property has either been occupied by the assessee or any other person on his behalf or has been let out.

To know about the deduction available under Section80E of the Income Tax Act, click

here.

Back to Learn

Frequently Asked Questions

Common questions about Income Tax Deduction for House Purchase or Construction.

Section 80C of the Income Tax Act allows taxpayers to claim a deduction from their taxable income for various investments and expenses, including payments made towards the purchase or construction of a residential house.

Eligible payments under Section 80C include installments or part payments towards the cost of a house under government housing schemes, payments to housing companies or societies, stamp duty and registration fees, and repayment of housing loans from approved sources.

No, expenses for any additions, alterations, renovations, or repairs carried out after the completion of construction or after the house has been occupied or rented out are not eligible for deduction under Section 80C.

Yes, there is an overall limit of Rs. 1.5 lakh per financial year for deductions under Section 80C, which includes deductions for various eligible investments and expenses, including those related to the purchase or construction of a house.

The deduction under Section 80C can be claimed only if the Net Annual Value (NAV) of the house property is assessable to tax under the head 'Income from House Property', which typically means that the house is self-occupied or deemed to be self-occupied.

The Net Annual Value (NAV) is a concept under Income Tax law that determines the amount of tax a taxpayer is liable to pay in connection with the ownership of a house property. It is calculated based on factors such as the rental value of the property, municipal taxes paid, and deductions for repairs and maintenance.

Yes, the deduction under Section 80C can be claimed for a house purchased from a private seller, provided that the necessary stamp duty, registration fees, and other eligible expenses related to the purchase are paid.

No, the deduction for repayment of housing loans can be claimed only if the loan is taken from approved sources specified in Section 80C, such as banks, housing finance companies, government agencies, or certain employers.

There is no specific restriction on claiming the deduction under Section 80C for multiple residential houses, as long as the eligible payments and expenses are incurred for each property and the overall deduction limit is not exceeded.

No, the deduction under Section 80C is specifically for payments made towards the purchase or construction of a residential house property, and not for commercial properties.