Everyone dreams of having a house of their own. However, buying a house can be extremely expensive. If your dream is to own a home, then getting a home loan is the right option. What is more exciting is that home loans come with many benefits. In this blog, we will explore what these benefits are. So, read this article further to know how to make the most of these tax benefits on home loan.
Anyone can take a home loan to help them finance the purchase of a home or the construction of one. These loans will not only help you get your dream home but will also help with tax saving on home loan as per the provisions of the Income Tax Act 1961. Under various sections of the Income Tax Act, you can get tax benefits that will help you save a lot of money every year.
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Tax Benefits on Home Loan for the FY 2022-23
Buying a home is not just a great milestone to achieve but also a significant financial decision to make. Home loans are attractive to homebuyers as they offer many tax benefits besides financial assistance. The following table shows you the tax benefits on 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|
Tax benefits under Section 24
Section 24 of the Income Tax Act states that taxpayers are eligible for a tax deduction for the interest paid on a home loan. The deduction is available for both self-occupied and rented properties. The maximum deduction is up to Rs 2 lakhs a year for self-occupied properties, while there is no limit for rented properties. However, for a rented property, the amount deducted should not exceed the net annual value of the property.
A taxpayer can enjoy the tax rebate on home loan if:
- The construction of a home should be completed within 5 years from the end of the financial year that the loan was taken.
- The loan should be obtained from a reputed bank or financial institution.
- The loan should be used for your own residential purpose and not for commercial purposes.
For the deduction, the taxpayer should provide proper documentation for proof that the interest amount was paid that year. The amount to be deducted will strictly be based on the interest paid.
Home Loan Tax Benefits under Section 80C – Principal Deductions
Under Section 80C of the Income Tax Act, you will get tax benefits on the principal amount of the home loan. The maximum amount deducted is up to 1.5 lakhs every year for self-occupied and rented properties. This amount includes other investments like Provident Fund, Public Provident Fund, National Savings Certificates and more. Some of the features of this section are:
- You can claim deductions for stamp duty and registration charges only once.
- You can claim tax benefits only after you complete the property construction first.
- You must not sell your house within 5 years of possession to claim a tax deduction on your home loan.
- And if you sell your house within 5 years after possession, then any tax deduction you claim will be reversed in the year in which you sell it. And this amount will also add to your income for the year of sale.
Also Read: The Ultimate Home Loan Calculator – Check How Much Can You Afford?
Home Loan Tax Benefits under Section 80EE- Interest Deductions
Under Section 80 EE, taxpayers will get tax benefits on the interest amount. Some of the features of this tax benefits are:
- Allows you to get tax rebate on home loan of up to Rs.1.5 lakh on the interest amount paid.
- Under Section 24(b), you can get 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, and only then will you be eligible for tax benefits.
Tax Deduction for Joint Home Loan
If you avail of a joint home loan with your significant other or family member, then they are eligible to claim a tax deduction on the interest up to Rs.2 lakhs each. You can also claim tax benefits on the principal paid for up to Rs.1.5 lakhs each. However, both 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 than 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|
|Buying or constructing a new house should be completed within five years from the financial year end in which the loan was availed.
|For property which has a stamp value of up to Rs.45 lakh.|
|Interest||Rs.50,000||80EE||For a loan amount of up to Rs.35 lakh and for property value of up to Rs.50 lakh.
|Interest||Rs.1.5 lakh||80C||You must wait to sell the property before you complete 5 years of possession.
|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.
Other Tax Benefits on Home Loans
Apart from the benefits mentioned above, there are a few other tax benefits on home loans; these are:
- Tax benefit on stamp duty and registration charges: The stamp duty and registration charges paid when purchasing a property are also eligible for a tax deduction under section 80C. The maximum deduction allowed is up to Rs. 1.5 lakhs per year. Moreover, stamp duty and registration fees are eligible for tax deduction even if you did not take a home loan.
- Tax benefit on pre-construction interest: If you have taken a home loan to construct a property, you can claim a tax deduction under section 24 for the interest paid during the pre-construction period. You can claim the deduction by dividing it into five equal instalments, starting from the year when the construction is completed.
- Tax benefit for joint owners: In case of a home loan taken jointly, each co-owner can claim a tax deduction for the interest paid and the principal amount repaid based on their share in the loan.
How To Claim Tax Saving on Home Loans?
When you get a home loan, there is an option to save tax when repaying your loan amount. So people who have taken home loans are eligible for tax deductions as per Section 24, Section 80C, and Section 80EE. These tax benefits on home loan are available on the repayment of both principal and interest. So here is a detailed explanation of how you can avail of tax benefits for your home loan under the following sections:
Under Section 80C of the Income Tax Act, you can avail of tax benefits on the principal amount of the home loan. You can get a maximum tax deduction of up to Rs.1,50,000. The tax deduction is on a payment basis irrespective of the year for which the payment has been made. To claim this deduction, the individual must provide a certificate from the lender that specifies the principal amount paid in that year. This deduction is available only for the first repayment towards the principal amount. Subsequent payments towards the amount will not be eligible for deduction under Section 80 C. However, the tax benefit for repayment of the principal loan amount is done after only the construction of the house is complete.
Under Section 24, a house loan tax exemption is available on the interest amount of the home loan. The tax is mainly deducted on an accrual basis. You can claim a maximum tax deduction of up to Rs.2 lakh under Section 24. You can claim this benefit every year even if no payments are made during that year. Additionally, if the house is not built within 3 years after the end of the fiscal year in which the loan was acquired, you will only be able to deduct Rs. 30,000.
If you take a home to repair, reconstruct or renew your house, you cannot claim any tax deductions on the interest paid. Suppose you have completed paying your interest for the home loan used for construction. In that case, only the aggregate amount is allowed for deduction in 5 equal installments for 5 successive financial years.
Section 80 EE provides a tax deduction of about Rs. 50,000 annually for first-time home buyers. This benefit is available for home loans taken between 1st April, 2016 and 31st March 2017. This applies when the property’s value is less than Rs 50 Lakhs, with the loan amount being less than Rs. 35 Lakhs.
You can claim the tax benefits under Section 80 EE if:
- Your Home Loan was taken from a financial institution registered with the RBI.
- The value of your home does not exceed INR 45 lakhs.
- The loan amount is at most INR 35 lakhs.
- Your income for the year is at most INR 50 lakhs.
Section 80 EEA
Under Section 80EEA of the Income Tax Act, you can claim annual tax benefits of up to Rs.1.5 lakh. Moreover, you can claim tax deductions on the interest paid on the home loan. The benefits that can be claimed are over the tax deductions that can be claimed under Section 80EE.
Also Read: You Can Get Tax Benefits On Personal Loans For These 3 Reasons
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 per the Income Tax Act.
- Calculate the tax saving on home loan that you have to claim.
- Make sure that the house is in your name or that you are the co-applicant of the loan (in case of a joint home loan).
- Submit your home loan interest certificate to your employer to evaluate and adjust the tax deductible at source.
- If you did not perform the above step, you should file the income tax return by yourself.
- If 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 home loan is by using a home loan calculator online. All you have to do is enter your home loan details and click “Calculate”, after which a detailed tabulation will pop up. The details you will need to fill in are the Loan Amount, Tenure, Interest Rate, Loan Start Date, Gross Annual Income and Existing Deduction Under 80C/D.
Also Read: 5 Income Tax-Saving Tips for Small Businesses
If you dream of buying your own house, 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 home loan that will help you save a lot of money every year. According to Section 24, Section 80C, and Section 80EE, people are eligible for house loan tax exemption if they have taken a home loan. These tax benefits are available on the repayment of both principal and interest. Need a home loan? Visit the Buddy Loan website to get your dream house today at an interest rate of 11.99%. Click here!
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Can I claim tax deductions if I plan to construct and sell the house in a few years?
If you sell the house within 5 years of possession, any tax deductions already claimed will be reversed. However, the tax deductions on interest paid will remain unchanged.
Who is 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, the borrower 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?
Tax deductions are only available after the completion of the house’s construction. After which, you can then write off all of the interest you paid before the year you took possession. And this benefit can be taken in 5 equal installments from the year the house construction is completed.
Can I claim tax benefits on loans from friends?
Under Section 24(b), you can claim tax deductions only for the interest paid. However, your friend will have to give you a certificate and be liable to pay tax on the interest earned from the loan.
Can I claim tax benefits on two home loans?
Generally, you can claim tax benefits only if the house is self-occupied. You must claim only one house as self-occupied property if you own two houses. The other home will be considered a let-out property, and the applicable tax slab will be used to calculate the tax. Your income will include the rent from your second house.
Can my spouse claim a 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 different source of income. So you both can claim tax deduction under Section 80C up to Rs.1.50 lakh from your total income. Additionally, if the home is co-owned, each co-owner may deduct up to Rs. 2 lakh from the interest.
Does the Home Loan principal come under Section 80C?
Yes, the 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 only take advantage of this tax break after the construction of the property.
Are there any other tax deductions I can claim concerning 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 can claim tax deductions up to a maximum of Rs.1.5 lakh during a financial year.