Everyone’s dream is to buy a house of their own. The Indian government has always been very interested in getting people to buy houses. This is why Section 80C lets you take a tax break for a home loan and when you buy a house with a home loan, you get a number of home loan tax benefits that cut your tax bill by a lot.
The Indian housing market is also getting a green light from programs, such as the Pradhan Mantri Jan Dhan Yojana, that work to make housing more affordable for all. In this article, we’ll talk about the 5 home loan tax benefits that you can avail of if you take a home loan.
Section 80C – Tax Benefit On Principal Amount
Under Section 80C, you can deduct the principal part of your yearly EMI payments. The upper limit is INR 1.5 lakhs.
This deduction is only available if the home construction is complete and the home is not sold during the first five years of ownership. If you sell the house before 5 years, the deduction you took will be reversed and applied to your income in the year of sale.
Section 24 – Income Tax Exemption On Interest On Home Loan
The interest you pay on your home loan in India can be deducted from your taxable income in accordance with Section 24 of the Income Tax Act. There is a cap of INR 2 Lakhs on the amount that can be deducted from your income for a self-occupied property under Section 24.
There is no cap on the amount of interest you can claim if the property is rented out. All the interest you’ve paid on your home loan towards acquisition, building, repair, renewal, or reconstruction is tax deductible if you rent out the property.
It’s also important to know that this tax deduction on a home loan is deducted on a payable basis, which is the same as an accrual basis. So, a deduction can be claimed under Section 24 even if no payment was made during the year. This is different from Section 80C, which only allows a deduction when a payment is made.
In addition, the interest benefit is lowered from INR 2 Lakhs to INR 30,000 if the property is not bought or completely finished within 5 years from the end of the financial year in which the loan was taken (beginning with FY2016-17, the previous 3-year cap has been raised to a 5-year maximum.
Additional Deduction Under Section 80EE
Home buyers can deduct an extra INR 50,000 from their taxable income under Section 80EE. The following requirements must be satisfied before you can take advantage of this home loan tax benefit:
- The loan amount should not exceed INR 35 lakhs and the value of the property must not exceed INR 50 lakhs
- As of the day on which the loan is approved, the borrower must not have another house in their name
Section 80EEA – Benefit For First-time Buyers
Budget 2019 added an extra deduction for homebuyers under Section 80EEA, up to a maximum of INR 1,50,000, in an effort to stimulate the property market. The following prerequisites must be completed before this deduction can be claimed:
- Loan approval must have happened between 1 April 2019 and 31 March 2022
- Stamp duty on the residence must not exceed INR 45 Lakhs
- The home loan borrower must be a first-time homebuyer and must not have owned residential property at the time of loan approval
- Both spouses can claim this deduction if they jointly own a home and make loan payments
- Section 80EEA benefits are available to residents and non-residents
- The section does not specify whether the residential residence must be self-occupied for the deduction. This provision allows deductions without possession.
Joint Home Loan Deduction
In their tax filings, joint loan holders can deduct home loan interest up to INR 2 lakhs and principal repayment under Section 80C up to INR 1.5 lakhs. However, to be able to claim this deduction, they must co-own the loaned property and have both their names on the property papers.
There are many advantages associated with taking a home loan to buy a property. However, before taking a home loan, always use a home loan calculator to compare different lenders and opt for a home loan balance transfer if another lender’s current home loan interest rate is lower.
To sum up, these are the 5 home loan tax benefits that you can avail of if you take a home loan.
|Deduction Type||Section||Maximum Deduction (INR)||Conditions|
|Principal||80C||1.5 Lakh||The house shouldn’t be sold in the first 5 years of ownership|
|Interest||24B||2 Lakh||The loan must be used to buy or build a house, and the building must be finished within five years of the end of the financial year when the loan was taken out.|
|Interest||80EE||Rs.50,000||The loan amount can’t be more than INR 35 Lakhs and the property’s value can’t be more than INR 50 lakhs|
|Stamp Duty||80C||1.5 Lakh||It can only be claimed in the year that the costs are incurred.|
|Interest||80EEA||1.5 Lakh||The property’s stamp value should be less than or equal to INR 45 Lakhs. The taxpayer is not eligible to get a deduction under Section 80EE.|