If you have a dream of buying your own house, then getting a home loan is the right option and comes with many benefits. A home loan will help you save tax as per the provisions of the Income Tax Act, 1961. Moreover, you can get tax benefits on your home loans that will help you save a lot of money every year.
So, read this article further to know how you can make the most of these tax benefits on your home loans.
Tax Benefits on Home Loan for the FY 2022-23
The following table shows you the tax benefits for home loan under the corresponding sections of the Income Tax Act, 1961.
|Income Tax Act||Maximum Deductible Amount|
|Section 24||Rs.2 lakh per annum|
|Section 80C||Rs.1.5 lakh per annum|
Home Loan Tax Benefits under Section 80C – Principal Deductions
Under Section 80C, you will get tax benefits on the principal amount. So here are the features of this tax benefit:
- You can claim tax deductions up to a maximum of Rs.1.5 lakh every year for both self-occupied and rented properties on the principal amount repayment.
- You can claim deductions for stamp duty and registration charges only once.
- You can claim tax benefits only after you complete the construction of the property first.
- You must not sell your house within 5 years of possession to claim tax deduction on your home loan.
- And if in case you sell your house within 5 years after possession, then any tax deduction that you claim will reverse in the year in which you sell it. And this amount will also add to your income for the year of sale.
Home Loan Tax Benefits under Section 80EE- Interest Deductions
Under Section 80E, you will get tax benefits on the interest amount. So here are the features of this tax benefit:
- Allows you to get tax benefits of up to Rs.1.5 lakh on the interest amount paid on your home loan
- Under Section 24(b), you can tax benefits over and above the existing exemption of Rs.2 lakhs.
- The value of your housing property must be less than Rs.45 lakh, only then you will be eligible for tax benefits.
Tax Deduction for Joint Home Loan
If you avail a joint home loan with your family member, each of them are eligible to claim a tax deduction on the interest up to Rs.2 lakhs each. And you can claim tax benefits on the principal paid for up to Rs.1.5 lakhs each. However, both the applicants must be co-owners of the property in order to claim this tax deduction. Therefore, a joint home loan can give you more tax benefits compared to a regular home loan.
Here Is The List of Deductions You Can Claim For A Joint Home Loan:
|Deductions||Maximum Deduction||Section of the Income Tax Act||Terms|
|Interest||Rs.2 lakh||24b||For buying or constructing a new house which should be completed within five years from the financial year end in which the loan was availed.|
|Interest||Rs.1.5 lakh||80EEA||For property which has a stamp value of up to Rs.45 lakh.|
|Interest||Rs.50,000||80EE||For loan amount of up to Rs.35 lakh and for property value of up to Rs.50 lakh.|
|Principal||Rs.1.5 lakh||80C||You must not sell the property before you complete 5 years of possession.|
|Stamp Duty||Rs.1.5 lakh||80C||Should claim in the same financial year as it was spent.|
Tax Benefits On Home Loan When Owning A Second Property
As per the current Income Tax provisions, tax benefits are applicable for payable interest where you can claim the entire interest amount paid. You can also claim the second home to help you save more on taxes.
How To Claim Tax Benefits on Home Loans?
When you get home loan, there is an option available to save tax when you are repaying your loan amount. So people who have taken home loans are eligible to get tax deductions as per Section 24, Section 80C, and Section 80EE. These tax benefits are available on the repayment of both principal and interest. So here is a detailed explanation on how you can avail tax benefits for your home loan under the following sections:
Under Section 80C of the Income Tax Act, you can avail tax benefits on the principal amount of the home loan. And you can get a maximum tax deduction of up to Rs.1,50,000. The tax deduction is on the payment basis irrespective of the year for which the payment has been made. You can also claim deductions for the amount paid towards stamp duty charges and registration fees under Section 80C. Moreover, the stamp duty charges and registration fee charges are eligible for tax deduction even if you did not take a home loan. However, tax benefit for repayment of principal loan amount is done only after the construction of the house is complete.
Under Section 24, Tax benefit is available on the interest amount towards the home loan. The tax is mainly deducted on an accrual basis. You can claim tax deduction of maximum up to Rs.2 lakh under Section 24. You can claim this benefit on a yearly basis even if there are no payments made during that year. Moreover, you will be allowed to claim only Rs.30,000 as deduction if the house is not constructed within 3 years from the end of the financial year that the loan was taken.
If you take a home to repair, reconstruct or renew your house, then you cannot claim any tax deductions on the interest paid. And If you have completed paying your interest for the home loan used for construction, then only the aggregate of the amount is allowed for deduction in 5 equal instalments for 5 successive financial years.
Section 80EE offers tax benefits on interest paid on home loans for first time borrowers. Moreover, the loan amount must not exceed Rs.25 lakh and the value of the housing property must not exceed Rs.50 lakh. The tax deduction under Section 80EE will not exceed Rs.50,000.
Section 80 EEA
Under Section 80EEA of the Income Tax Act, you can claim tax benefits of up to Rs.1.5 lakh in a year. Moreover, you can claim the tax deductions on the interest that is paid on the home loan. The benefits that can be claimed are over the tax deductions that can be claimed under Section 80EE.
Steps To Claim Tax Benefits on Your Home Loans
You can claim tax benefits on a home loan with this simple process. So here are the steps to claim your tax deductions as per the Income Tax Act.
Step 1: Calculate the tax benefit that you have to claim.
Step 2: Make sure that the house is in your name or you are the co-applicant of the loan (in case of a joint home loan).
Step 3: Submit your home loan interest certificate to your employer to evaluate and adjust the tax deductible at source.
Step 4: In case you did not perform the above step, you should file the income tax return by yourself.
Step 5: In case you are self-employed, you don’t have to submit these documents anywhere. Just keep them ready in case the IT department raises queries in the future.
How To Calculate Tax Benefits on Home Loan?
The easiest way to calculate your tax benefits on a home loan is by using a home loan calculator online. All you have to do is simply enter your home loan details and click on “Calculate” after which a detailed tabulation will pop up. The details you will generally need to fill are: Loan Amount, Tenure, Interest Rate, Loan Start Date, Gross Annual Income and Existing Deduction Under 80C/D.
If you have a dream of buying your own house, then getting a home loan is the right option and comes with many benefits. A home loan will help you save tax as per the provisions of the Income Tax Act, 1961. Moreover, you can get tax benefits on your home loan that will help you save a lot of money every year. And people who have taken home loans are eligible to get tax deductions as per Section 24, Section 80C, and Section 80EE. These tax benefits are available on the repayment of both principal and interest.
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Can I claim tax deductions if I plan on constructing the house and selling it in a few years?
If you sell the house within 5 years of possession, any tax deductions that are already claimed will be reversed. However, the tax deductions on interest paid will remain unchanged.
Who all are eligible to claim tax deductions on home loans?
The owner of the house can claim tax benefits. And if the spouse is a co-borrower, they can also file for tax deductions. In the case of a joint home loan, both corrower and the co-applicant can claim their tax benefits for the loan they repay.
The house that I purchased using a home loan is still under construction. Can I claim tax benefits?
No, you cannot claim tax deductions till the construction of the house is completed. Once it is done, you can claim deductions for an aggregate of interest for the period prior to the year of taking possession. And this benefit can be taken in 5 equal instalments from the year in which construction of the house is completed.
Can I claim tax benefits on loans from friends?
Under Section 24(b), you can claim tax deduction only for the interest paid. However, your friend will have to give you a certificate and will be liable to pay tax on the interest earned from the loan.
Can I claim tax benefit on two home loans?
Generally, you can claim tax benefits only if the house is self-occupied. And in case you own two houses,then only one house can be claimed as self-occupied property. The other house will be considered as a let-out property and will be taxed as per the tax slab applicable. The rent that you get on your second house will be added to your income.
Can my spouse claim tax deduction if we buy a house using a Joint home loan?
Yes, you can claim separate tax deductions if your spouse is earning and has a separate source of income. So you both can claim tax deduction under Section 80C up to Rs.1.50 lakh from your total income. And if the house is jointly owned, each co-owner can claim deductions up to Rs.2 lakh on the interest.
Does the Home Loan principal come under Section 80C?
Yes, home loan principal amount is a part of Section 80C of the Income Tax Act. Under this section, you can get tax deductions on the principal amount as repayment on the housing loan. You can claim deductions up to Rs.1.50 lakh under Section 80C. However, you can get this tax benefit only after the house is constructed.
Are there any other tax deductions that I can claim with respect to interest paid on the home loan other than the interest under Section 24(b)?
You can claim tax deductions on the interest paid on the home loan under Section 80EE of the Income Tax Act. Under this section, you are eligible to claim tax deductions up to a maximum of Rs.1.5 lakh during a financial year.