Know Your Income Tax Benefits On Home Loan In Details

Buying a home is not a dream anymore – with banks offering easy home loans in India, buying homes has become much cheaper. To encourage its citizens to invest in property and to make property purchases more lucrative, the government offers various tax benefits, especially if the property has been purchased using a home loan. Apart from this while applying for a home loan, the most important question is the current home loan interest rate. Thorough market research can help you select the right lender with the best home loan interest rate.

Home Loan Tax Benefits 2022

A home loan is mainly taken for the purchase/construction of a house. The home loan calculator can help you know the interest to be paid and decide whether to go for the loan or not. So, before you opt for a home loan you should know all the facts and benefits of a home loan. If the loan has been availed of for the construction of the house, then the construction must be completed within five years from the end of the financial year in which the loan was taken, if you wish to avail of tax benefits on the loan.

Now, if you are paying EMI for the housing loan, it mainly has two components:

  • Interest payment
  • Principal repayment

Did you know you can avail of tax benefits on each of these home loan components? On the purchase of property with home loans, borrowers enjoy a variety of deductions on their income tax liability. Section 80C, Section 24, Section 80EE, and Section 80EEA under the Income Tax Act allows for such deductions on home loans. Home buyers can enjoy income tax benefits on both the principal and interest portion of the home loan under various sections of the Income Tax Act 1961.

Tax deductions allowed on home loan principal amount + stamp duty registration charge
Section/s under the Income Tax LawSection 80C
The upper limit on tax rebateINR 1.50 lakhs per annum
The upper limit on tax rebates for senior citizensINR 2 lakhs per annum
Tax deductions allowed on home loan interest
Section/s under the Income Tax LawSection 24, Section 80EE, Section 80EEA
The upper limit on tax rebateUp to INR 3.50 lakhs per annum
The upper limit on tax rebates for senior citizensUp to INR 4.50 lakhs per annum

You can claim a deduction on the interest portion of the EMI paid for the year from your total income up to a maximum of INR 2 lakh under Section 24. Thus, in all, a home loan borrower can claim a tax deduction of up to INR 7 lakhs.

Home Loan Tax Benefits under Section 80C 

Section 80C of the Income Tax Act of 1961deals with the deductions on the principal amount of the home loan:

  • On the principal repayment amount for both self-occupied and let-out properties, you can claim up to a maximum of INR 1.5 lakh/year from your taxable income.
  • If a property is jointly owned, each co-borrower can claim INR 1.50 lakhs as a tax deduction on their respective incomes under Section 80C. Spouses can claim benefits only if they are co-owners, as well as co-borrowers.
  • Stamp duty and registration charges can be claimed as deductions, but only once.
  • The construction of the property must be complete to claim the deduction.
  • To claim this deduction you should not sell the house within 5 years of possession. 
  • If the house is sold within 5 years after possession, the deduction claimed will be reversed in the year of the sale and will be added to your income for the year of sale.

Tax Benefits under Section 24

This section allows for the following additional tax benefits on the home loan interest portion:

  • Section 24 allows home buyers tax deductions of up to INR 2 lakhs in a year towards interest payments on home loans. This is, however, only for self-occupied properties. In case the property has been given on rent or falls under the category deemed to be let out, the entire interest amount paid is waived off as a deduction. However, you can claim this only if the construction of the property is completed within 5 years or else you can claim only up to INR 30,000.
  • For jointly owned property, each co-borrower can claim INR 2 lakhs as a tax deduction on their respective incomes under Section 80C. The owners in this case will have to be co-borrowers.
  • Section 24 also allows buyers to avail of tax deductions, even if the buyer has used his funds to buy the property, without seeking any housing loan. Under this section, a flat 30% deduction on the net annual value of a property is available to the owner, if the house is purchased entirely using the buyer’s funds.
  • This is for properties valued less than INR 50 lakh

Tax Benefits under Section 80EEA

Benefits under this section are offered over and above the benefits available under Section 80C and Section 24. This benefit was started to make homeownership more lucrative for the first-time buyer, by way of offering an additional deduction of INR 1.50 lakhs in a year.

  • Tax deduction under this section is available only to individuals who are new or first-time buyers. 
  • The maximum value of the property should not be more than INR 45 lakhs
  • Borrowers can claim the benefit only if the loan is taken from a bank or housing finance company and not from friends or family members.
  • First-time buyers can claim deductions of INR 3.50 lakhs as interest by combining the benefits under Section 24 and Section 80EEA. It will be even better if the property is jointly owned, as the co-borrowers can individually claim INR 3.50 lakhs per annum as tax benefit under this section. 

Summing Up

In conclusion, the government of India provides some very lucrative benefits to home buyers who avail of home loans for buying a home. In each budget, we see revisions in the above tax benefits and it is making it easier for people to have a home of their own. So, make the most of these benefits and apply for a home loan today. 

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