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Tax Benefits on Home Loan
Planning to buy your dream home? Here's how to save tax on your home loan
Home Loan Tax Benefits: Home loans are strictly given for the purchase or construction of a house. It has two components - Principal amount and interest amount. One can avail tax benefits on these components under sections 80C and 24(B) of the Income Tax Act, 1961
Home Loan Tax Benefits: One of the most important milestones in everybody's life is buying a dream house. And the convenient source of finance to fulfil this dream is a Home Loan.
In line with this aspiration, the government has always encouraged its citizens to invest in a home through various progressive schemes like Pradhan Mantri Awas Yojana.
But do you know, there are various tax benefits on availing a home loan under the Income Tax Act of 1961 (‘the Income Tax Act’)? It helps a person to save money on the expenditure of the taxable amount.
What comprises home loan?
Home loans are strictly given for the purchase or construction of a house. It has two components - Principal amount and interest amount. One can avail tax benefits on these components under sections 80C and 24(B) of the Income Tax Act, 1961.
Tax Deduction on interest paid
Under Section 24(b) of the Income Tax Act, one can claim a deduction of the interest amount paid on home loan against the gross income For a self-occupied home, the person can claim the deduction of the interest amount upto a maximum of Rs 2 lakh. Whereas, for the property given on rent, there is no upper limit for claiming interest. However, the overall loss one can claim under the head ‘House Property’ is restricted to Rs 2 lakh only. Note: No Deduction towards Interest u/s 24(b) is allowed for Self-Occupied Property, if individual opted for “Simplified regime of Taxation u/s 115BAC ”
Tax Deduction on principal amount
The principal portion of the EMI paid can be claimed as a deduction under Section 80C up to a maximum of Rs 1.5 lakh. This deduction can only be availed after the construction of the residential house property is complete. Note: if you sell your property within 5 years from the end of the financial year in which possession of such property is obtained, this benefit will be reversed. Note: No Deduction towards sec 80C is allowed for the individual opted for “Simplified regime of Taxation u/s 115BAC”
Tax Deduction for joint home loan
If a home loan is taken jointly, each borrower can claim a deduction on home loan interest up to Rs 2 lakh under Section 24(b) and tax deduction on the principal repayment up to Rs 1.5 lakh under Section 80C. This doubles the amount of deductions available when compared to a home loan taken by a single applicant. It is however required that both the applicants should be co-owners of the property and both service the EMIs and have not opted for new regime of Taxation u/s 115BAC
Deduction for stamp duty and registration charges
Besides claiming the deduction for principal repayment, a deduction for stamp duty and registration charges can also be claimed under Section 80C but within the overall limit of Rs 1.5 lakh. However, it can be claimed only in the year these expenses are incurred. Note: No Deduction towards sec 80C is allowed for the individual opted for “Simplified regime of Taxation u/s 115BAC”
Tax Deduction Under section 80EEA for first-time buyers
Under the objective “Housing for All”, the government has introduced a new Section 80EEA to allow for an additional interest deduction for a maximum of up to Rs 1,50,000 in addition to interest deduction u/s 24(b) of Rs 2,00,000. This deduction is available only if the loan has been sanctioned on or before 31st March 2022. Note:No Deduction towards sec 80EEA is allowed for the individual opted for “Simplified regime of Taxation u/s 115BAC”
Tax Deduction for second housing loan
Apart from the first property, a second property can also be considered as self-occupied property, if the first property cannot be occupied owing to business or professional reasons. However, the aggregate amount of deductions is subject to the respective caps mentioned above.
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Disclaimer: The information contained in this post is for general information purposes only. IIFL Home Finance Limited (including its associates and affiliates) ("the Company") assumes no liability or responsibility for any errors or omissions in the contents of this post and under no circumstances shall the Company be liable for any damage, loss, injury or disappointment, etc. suffered by any reader. All information in this post is provided "as is", with no guarantee of completeness, accuracy, timeliness, or of the results, etc. obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability, and fitness for a particular purpose. Given the changing nature of laws, rules, and regulations, there may be delays, omissions, or inaccuracies in the information contained in this post. The information on this post is provided with the understanding that the Company is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers. This post may contain views and opinions which are those of the authors and do not necessarily reflect the official policy or position of any other agency or organization. This post may also contain links to external websites that are not provided or maintained by or in any way affiliated with the Company and the Company does not guarantee the accuracy, relevance, timeliness, or completeness of any information on these external websites. Any/ all (Home/ Loan Against Property/ Secured Business Loan/ Balance Transfer/ Home Improvement Loan/ NRI Home Loan/ Home Loan for Uniformed Services) loan product specifications and information that may be stated in this post are subject to change from time to time, readers are advised to reach out to the Company for current specifications of the said (Home/ Loan Against Property/ Secured Business Loan/ Balance Transfer/ Home Improvement Loan/ NRI Home Loan/ Home Loan for Uniformed Services) loan.