All You Need to Know About Tax Benefits On Home Loans In India

A home loan can help you get your dream home without having a large saving corpus. Another advantage of availing of a housing loan is the home loan tax benefits. If you’re planning to apply for a home loan, you should know about the various tax benefits that your loan carries. It was announced in the latest financial budget that the deadline for availing additional deductions on interest payment on home loans has been extended to March 31, 2022. You can choose the old tax regime and claim various tax deductions that come under it. Alternatively, you can choose the new tax regime which extends a lower tax rate, but no tax exemptions and deductions.

Let’s find out the home loan tax benefit that you can avail of under the old tax regime.

Deduction on Principal Repayment

If you pay EMIs on your housing loan, there are two components to it — principal repayment and interest payment. The principal component is allowed to be claimed under Section 80C of the Income Tax Act. You can claim up to an amount of Rs. 1.5 lakh per year from the principal repayment for self-occupied properties, as well as let-out properties. This deduction can be claimed for stamp duty and registration as well.

To claim this deduction, however, you cannot sell the house within 5 years of possession. In case you sell it within this timeframe, any deduction claimed will be added again to your income in the year you make the sale.

Deduction on Interest Payment

Under Section 24, you can claim the interest component of the EMI for tax deduction up to an amount of Rs. 2 lakh, when it comes to a self-occupied property. For a let-out property, you can claim a higher amount, as there is no maximum capping of claiming interest. Nonetheless, the total loss that can be adjusted against other income heads, such as salary, is capped at Rs. 2 lakh per year. The remainder of loss under the ‘Income from house property’ head can be carried forward for 8 succeeding years, and adjusted against the income from house property.

Deduction on Interest Paid for Home Loan for Pre-construction

If you make EMI payments for an under-construction house, there is a provision for home loan tax benefits. You can claim the interest payments for deduction in 5 instalments, beginning from the year you complete the property’s construction. This is separate from the deduction that you can claim from the house property income. The maximum deduction, however, is restricted to Rs. 2 lakh.

Additional Deduction Under Section 80EEA

You can also claim an additional deduction on the interest payment of an affordable housing scheme in India, or a low-cost home loan. Under Section 80EEA, you can claim a deduction of up to Rs. 1.5 lakh on the interest paid on the home loan. It is provided over and above the deduction under Section 24 on interest payment. Hence, you can claim a total deduction of up to an amount of Rs. 3.5 lakh in a year if you’re buying an affordable house. To claim this deduction, you must meet the following conditions:

● The stamp duty value of the house should not exceed Rs 45 lakhs

● The date of loan sanction is between 1 April 2019 and 31 March 2021

● You should not own any other house on the date the loan is sanctioned

● You are not eligible to claim deduction under section 80EE

Deduction for First-time Home Buyers Under Section 80EE

There is an additional deduction of Rs. 50,000 available solely for first-time homebuyers under section 80EE. This is over and above the deduction of Rs. 2 lakh allowed under Section 24 and the deduction of Rs. 1.5 lakh allowed under Section 80C. If you had taken a home loan in FY 2016-17, you are eligible to claim this deduction until you have fully repaid the loan.

To claim this deduction, you must meet the following conditions:

● The property value is not more than Rs. 50 lakh

● The home loan does not exceed Rs. 35 lakh

● The loan was sanctioned between April 1, 2016 and March 31, 2017

Deductions on Joint Home Loans

If two individuals avail of a home loan jointly, they can receive home loan tax benefits individually. Each one of the two joint owners of the property can claim tax deductions on home loan principal repayment of up to Rs. 2 lakh, and on interest payment of up to Rs. 1.5 lakh. The combined tax benefit totals up to Rs. 7 lakh if they meet the conditions.

Summary

In conclusion, a home buyer can avail home loan tax benefits under different categories. Using a home loan calculator can help check the financial viability of your loan with respect to tax benefits. The sections for categories of income tax deductions on a home loan are as follows:

Type of DeductionSectionMaximum Deduction (Rs.)
Principal Repayment80C1,50,000
Stamp Duty80C1,50,000
Interest Payment24B2,00,000
Interest Payment80EE50,000
Interest Payment80EEA1,50,000