All You Need to Know About Home Loan Tax Benefits

A home loan tax benefit can be availed by the salaried or self-employed alike. But its tenure, repayment period, and interest rates vary based on the creditworthiness of the borrower.

A home loan is generally taken to purchase, construct, or renovate a home. Apart from meeting the financial requirements, a home loan also offers tax benefits to the borrower. The Income Tax Act allows tax benefits on home loans on the repayment of the principal as well as the interest amount.

Home Loan Tax Deduction

The Income Tax Act, 1961, contains many provisions that offer tax deductions and exemptions on home loans taken by individuals. Tax deductions can be availed on principal repayments and/or interest payments.

Let us discuss in detail the different sections of the Income Tax Act that allow home loan benefits in income tax.

Section 80C

Under Section 80C, you can get a tax deduction on the annual principal repayment made for a loan borrowed for the purchase or construction of a house. You can get a tax exemption of up to ₹ 1.5 lakhs under this section. 

Apart from the exemption on the principal amount, Section 80C provides a deduction on stamp duty and registration charges as well. Section 80C provides a tax deduction for other types of investments as well and the total tax deduction allowed under this section is capped at a maximum amount of ₹ 1.5 lakhs.

Section 24

Section 24(b) also provides tax benefits on home loan interest payable on a loan taken for the acquisition, construction, repairs, renewal or reconstruction of a house property. Interest payable on a new loan taken to repay an original loan taken earlier is also allowed as a deduction.

There is no restriction on the amount of interest that can be claimed as a deduction for let-out house property. However, in the case of self-occupied house property, interest payable on loans taken for purchase or construction is capped at ₹ 2 lakh. Further, the purchase or construction should be completed within 5 years from the end of the financial year in which the loan was borrowed.

Interest payable on loans taken for repairs or renewal is capped at ₹ 30,000 per year. 

Deduction under section 24(b) for interest is available on an accrual basis. Therefore, interest accrued but not paid during the year can also be claimed as a deduction.

Interest payable before the completion of construction of a property can also be claimed as a deduction over a period of 5 years in equal instalments beginning from the year of completion of construction. However, the limit remains the same, which is ₹ 2 lakhs.

Also Read: How to Calculate Income from House Property?

Section 80EE

Section 80EE provides a deduction for interest payable on a loan borrowed for the purchase of a residential house by an individual. Under this section, an additional deduction of up to ₹ 50,000 of interest payable is allowed to the borrower. To avail the deduction, the following conditions must be fulfilled:

  • The loan amount should not be more than ₹ 35 lakhs and the value of the house should not be more than ₹ 50 lakhs
  • The loan amount must have been sanctioned in the time period of 1st April 2016 to 31st March 2017
  • The individual taking the loan should be a first-time homeowner, i.e., they should not have ownership of any other house on the date of sanction of the loan

The deduction of up to ₹ 50,000 under section 80EE is over and above the deduction of up to ₹ 2,00,000 available under section 24 for interest paid in respect of a loan borrowed for the purchase of a self-occupied house.

Section 80EEA

Section 80EEA is similar to Section 80EE as it provides a deduction for interest payable on a loan borrowed for the purchase of a residential house by an individual. Under this section, an additional deduction of up to ₹ 1,50,000 of interest payable is allowed to the borrower. To avail the deduction, the following conditions must be fulfilled:

  • The stamp duty value of the property should not be more than ₹ 45 lakhs.
  • The loan amount must have been sanctioned in the time period of 1st April 2019 to 31st March 2022
  • The individual taking the loan should be a first-time homeowner, i.e., he/she should not have ownership of any other house on the date of sanction of the loan
  • The individual should not be eligible for exemption under Section 80EE (discussed above)

The deduction of up to ₹ 1,50,000 under section 80EEA is over and above the deduction of up to ₹ 2,00,000 available under section 24 for interest paid in respect of a loan borrowed for the purchase of a self-occupied house.

How to Claim Home Loan Tax Deduction

Let us understand the steps required to be followed for claiming a home loan tax deduction:

  • You’ll need to prepare the documentation that includes: 
  • Ownership details of the property
  • Completion certificate of the under-construction property
  • Details of the borrower
  • A certificate from the lending institution with details furnished about interest and principal paid during the construction by the borrower
  • Record of the taxes paid to the municipal corporation of your city when the property was under construction
  • If you are a salaried individual, then submit these documents to your employer so that they can adjust TDS accordingly. If you are self-employed then, you don’t need to submit these documents anywhere. These documents may need submission later if there is any scrutiny from the tax authorities.
  • Claim for deduction under sections 80C, 80EE, 80EEA, or 24, as applicable, at the time of filing your return of income.

Along with being a source of funds for your house property, home loans can be effective tax-saving instruments. If you choose to take a second home loan, following the particulars and stipulations mentioned above, you will get the same benefits on the second home loan as well. Furthermore, if a loan is co-borrowed or the property is jointly owned, then the owners who are sharing the EMI payment can separately seek home loan tax benefits, which significantly reduces the tax burden.

Frequently Asked Questions

What is the tax deduction on a joint home loan? 

If a person takes a home loan with another person, then both have separate deduction limits. For example, for principal repayments, the limit of ₹ 1.5 lakh under section 80C will apply separately to both borrowers, thereby giving them tax benefits of ₹ 3 lakhs in aggregate. The loan is allocated to the owners in the ratio of their ownership and they can claim deduction accordingly.

How is a home loan sanctioned?

To begin with, the CIBIL score of the borrower must be acceptable. Lenders generally consider 650 as the minimum acceptable score. After the loan request is made, the credit history, income, and repayment capacity of the borrower along with other details are verified by the bank before sanctioning the loan.

How is deduction under Section 80EEA calculated?

First, the total interest payable on the home loan for the financial year is calculated. After that, the interest payable is first allowed as a deduction under section 24(b). Since section 24(b) has a limit of ₹ 2 lakhs, any interest in excess of ₹ 2 lakhs is then allowed as a further deduction under section 80EEA. Note that the excess interest will be allowed under section 80EEA up to a maximum limit of ₹ 1.5 lakhs.

Credit Principal at Wint Wealth

Vaibhav is Chartered Accountant by profession, having experience of 4+ years in banking & finance sector.
Since past one year associated with Wint Wealth as Credit Principal. Previously worked with Northern Arc Capital for 2 years in FI-Credit Team and AU Small Finance Bank for 1 year in LAP-Credit Team.

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Disclaimer: This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The article may also contain information which are the personal views/opinions of the authors. The information contained in this article is for general, educational and awareness purposes only and is not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision, whether related to investment or otherwise, taken on the basis of this article.

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