Home Loans Tax Benefits: How to Avail Them?

Buying a house is everyone’s dream. The Indian government provides multiple tax benefits on Home Loans under the Income Tax Act 1961, encouraging citizens to buy properties and improve their standard of living. Apart from reducing their tax bills, these benefits also help them manage their cash flow better. Therefore, being aware of these Home Loan tax benefits is essential as it helps save a considerable amount on Home Loans and Loan Against Property interest rates and principal payments.

Let us understand these tax benefits in detail.

1. Section 80C: Tax Deduction on Principal Repayment

Home Loan borrowers are eligible for a tax deduction of up to ₹1.5 Lakh on principal payments from their taxable income every year. The deduction is applicable for both rental and self-occupied properties. It also includes a one-time tax deduction on stamp duty and registration fees. The property’s construction should be complete, and the buyer should not sell the property within five years of possession. If they do, the deducted tax amount will reflect in the next year’s income and become payable.

2. Section 24: Tax Deduction on Interest Payment

Interest that a borrower pays on a housing loan is also tax deductible. Buyers can claim a tax deduction of up to ₹2 Lakh each year from their gross income under section 24(B) of the IT Act. However, the house should be self-occupied. There is no upper limit on the claimed interest for rented-out properties. Borrowers can claim the entire interest amount on their Home Loan for the property’s construction, purchase, renovation, reconstruction or repair. If the borrower owns two properties, the combined tax saving on Home Loan should not exceed ₹2 Lakh within a year.

3. Tax Deduction on the Interest of Under-Construction Property

Those who purchase an under-construction property and pay its EMIs can claim a deduction on the interest paid once the construction completes. They can claim a deduction of interest for both pre-construction and post-construction periods. Interest paid during the pre-construction period is deductible in five equal installments commencing after the property’s construction. Therefore, the total tax deduction under section 24(B) is 1/5th of the interest pertaining to the pre-construction period and the interest in the post-construction period.

4. Section 80EE: Additional Tax Deduction

First-time homebuyers can claim an income tax benefit on Loan Against Property interest rate under the following circumstances:

• The deduction is applicable only if the property’s cost does not exceed ₹50 Lakh and the loan amount is up to ₹35 Lakh.
• The borrower must have taken the loan between 1st April 2016 and 31st March 2017.
• The deduction is possible until the loan tenure ends.

The deduction under this section is accessible from the fiscal year 2016-17 and onwards.

5. Section 80EEA: Tax Benefit on Home Loan for First-Time Buyers

The interest paid on a Home Loan is tax deductible under Section 80EEA up to ₹1.5 Lakh after fulfilling the following requirements:

• If the customer buys a residential property with a Home Loan from a housing finance company or a financial institution.
• The loan approval should be made between 1st April 2019 and 31st March 2022.
• The property’s stamp duty value should not be more than ₹45 Lakh.
• The taxpayers should not claim deductions under Section 80EE.
• The individual should be a first-time home buyer and not own other residential property at the time of loan approval.
• Both resident and non-resident individuals can claim deductions under Section 80EEA.

If it is a joint loan between spouses and both partners pay EMIs, both can claim a deduction under the section.

Calculating the Tax Benefits on Home Loans

An online Home Loan tax benefit calculator is the simplest way to calculate tax savings on Home Loan. The users must enter crucial details like their annual income, 80C other investments, and loan details and get the desired results within a flash second.

Although a Home Loan has a cost, using it wisely can considerably reduce the financial burden and maximize tax savings. Other than saving taxes on the Loan Against Property interest rate and principal amount, these tax benefits eventually raise the consumer’s overall net worth. They can use the tax saved on other investments to reduce costs and increase profits.