Home Loan Tax Benefits You Must Be Aware Of

Taking a housing loan is one of the most common ways of procuring finance for the purchase of a house. A recent study shows that there has been a rise in home loan applications by 25-40% across major cities in India. Other than providing an easy way to purchase a home, home loans also extend home loan tax benefit to home buyers. In this article, we will discuss the tax benefits provided on home loans in different categories.

Deductions on Principal Repayment (Section 80C)

Under section 80C of the Income Tax Act, there is a provision for claiming a deduction of up to Rs. 1,50,000 on the principal amount repayment of a home loan. Additionally, a deduction of Rs. 1,50,000 can also be claimed for stamp duty and registration charges under Section 80C. As Section 80C includes deductions for investments such as LIC premium and tax-saving fixed deposits, it is important to calculate how much of all the deductions available under this section you can claim.

There are two conditions that one must meet to claim these deductions:

• The deduction can only be claimed once the house is built completely
• The homeowner cannot sell the house within 5 years of possession lest the deduction be reversed

Deductions on Interest Payment

Under Section 24 of the Income Tax Act, there is a provision for claiming a deduction on interest payments of a home loan. While the current home loan interest rate in India is relatively low, one can still avail of this tax benefit. There is a deduction of up to Rs. 2,00,000 on the interest payment of a self-occupied property, whereas there is no limit on the amount of deduction in case of let-out property. To claim this deduction, the property’s construction must be finished within 5 years. If that’s not the case, the deduction available is reduced to Rs. 30,000.

Beginning from the financial year 2018-19, a maximum loss of Rs. 2,00,000 from house property is allowed to be adjusted from other heads of income. The remainder of it can be carried forward to be adjusted in 8 successive years.

Deductions on Pre-Construction Interest Payment

For a housing loan on a property that is under construction, a deduction can be claimed in the form of a pre-construction interest. This will accrue in five equal instalments starting from the year the property was constructed. Moreover, for pre-construction interest in the case of self-occupied property, the limit for deduction is Rs. 2,00,000. In the case of a let-out property, it can be fully claimed.

Deduction for First-Time Home Buyers Under Section 80EE

For first-time home buyers, there is an additional deduction of Rs. 50,000 on interest payment per year on housing loans. This is separate from the deduction allowed under Section 24B, and the deduction allowed under Section 80C.

However, there are certain conditions that one must meet to claim this deduction. These include:

• The value of the property must be Rs. 50 lakh or less
• The home loan amount must be Rs. 35 lakh or less
• The date of loan sanction should be between April 1, 2016 and March 31, 2017.

Additional Deduction Under Section 80EEA

For encouraging individuals to purchase affordable housing properties, the government has allowed an additional deduction under section 80EEA. A deduction of up to Rs. 1,50,000 can be claimed on the interest paid on a low-cost housing loan. It is separate from the deduction offered under Section 24 on interest payment. To claim this deduction, the following conditions must be met.

• The stamp duty value of the house should not exceed Rs. 45 lakhs
• The loan must be sanctioned between 1 April 2019 and 31 March 2021
• You should not own any other house on the date of sanction of loan
• You are not eligible to claim deduction under section 80EE

Deductions on Joint Home Loan

Many opt for joint home loans to increase their tax benefits, as they can enjoy individual deductions in this case. For both the individuals taking a joint home loan, a deduction of up to Rs. 2,00,000 on the home loan interest, and a deduction of up to Rs. 1,50,000 on principal repayment is allowed individually. Thus, they can potentially enjoy a combined tax benefit of up to Rs. 7,00,000.

Summary

The various tax benefits on a housing loan are bifurcated into different categories, which are as follows: 

It is important to note that deductions under the above-mentioned sections are not available in the new tax regime. Furthermore, it’s advisable to check home loan EMIs to better understand the overall tax benefit that you can receive on your housing loan.