How to Claim Maximum Tax Benefits On Home Loans
Having a place one can call his/her own is a moment of pride and accomplishment. It is like a dream come true. The government helps us to achieve this dream by offering home loan tax benefits under the Income Tax Act of 1961. Hence, it is important to know everything about home loan tax benefits so that you can avail the maximum benefits on your tax payment.
Is it worth taking a Home Loan for Tax Benefits?
A home loan is considered a wise decision to reduce the tax burden. As a professional, when your income increase, the planning to minimize the tax burden starts over. Therefore, home loan offers amazing tax benefits in the long run along with other tax-saving investments. Ultimately, investing in home loans makes your dream come true and helps you save money on taxes.
In the latest financial budget speech, Union Finance Minister Nirmala Sitharaman announced an increase in the deadline for availing additional deductions on interest payments on home loans to 31st March 2024. This date extension is applicable for all home loans sanctioned till 31st March 2022.
The home loan covers both principal repayment and interest payments. Therefore, home loan tax benefits can be availed under various sections of the Income Tax Act, like Section 80C, Section 80EE, Section 80EEA and Section 24(b) of the Income Tax Act.
What is the benefit of taking a home loan in Income Tax?
|Section||Nature of Tax Deduction||Maximum Rebate (INR)|
|Section 80C||Tax Deduction on Principal Repayment||Up to Rs.1,50,000|
|Section 24B||Tax Deduction on Interest Paid||Up to Rs.2,00,000|
|Section 80 EE||Tax Deduction on Interest Paid||Up to Rs.50,000|
|Section 80EEA||Tax Deduction on Interest Paid||Up to ₹ 150000|
|For Joint Home Loan||Tax Deduction on Interest Paid and Tax Deduction on the principal repayment||Up to ₹ 2,00,000 u/s 24b
Up to ₹ 150000 u/s 80c
These sections and the deductions allowed have been discussed in detail in this article.
Home Loan Tax Benefits under Section 80C
- Section 80C pacts with the principal amount deductions.
- Individuals can claim tax deductions up to a maximum of Rs.1.5 lakh annually from taxable income on principal repayment for self-occupied and let-out properties. However, it can be claimed every year on repayment of the home loan.
- Section 80 C also allows a deduction for the stamp duty charges and registration charges.It can be claimed only once.
- The tax deduction is based on the payment irrespective of the year when the payment has been made.
- Tax benefit for repayment of the principal loan amount is allowed after the construction of the house is complete.
- You should not sell the house within five years of possession to claim the deduction.
- In case, by any chance, you sell the house within five years, the deduction made is reversed.
Home Loan Tax Benefits under Section 24
Under Section 24(b) of the Income Tax Act, you can avail of home loan tax benefits on the interest paid on your home loan. The maximum rebate that can be availed for a self-occupied house is Rs. 2 lakh from your gross income annually. However, if the house is not constructed within three years from the end of the fiscal year the loan was taken, only Rs.30000 can be claimed as a deduction. This home tax benefit could be claimed yearly even if no payments were made during that year.
Also, if the loan is taken for any repair or reconstruction of the house, no home loan tax benefits can be claimed on the interest paid in those scenarios. On the other hand, if the interest for the loan taken to purchase or construct the house has been paid before the house has been completed, then the average amount is allowed for deduction in 5 equal installments for five financial years.
Home Loan Tax Benefits under Section 80EE
A maximum of up to Rs. 50,000 additional deductions is allowed for first-time buyers under this section. Section 80EE is valid for loans sanctioned till 31st March 2017 only. To claim the home loan tax benefit under this section, the following conditions need to be met:-
- The loan should be less than or equal to Rs.35 lakhs. Also, the property’s value should not exceed Rs. 50 lakh.
- On the date the loan is sanctioned, the individual should be a first-time house owner.
Home Loan Tax Benefits under Section 80EEA
An additional deduction was made for home buyers for a maximum of up to Rs. 1,50,000 under Section 80 EEA.
To claim the tax benefits under a home loan, the following conditions should be met:-
- The individual should be a first-time home buyer on the date of loan sanction.
- The individual claiming deduction under Section 80EEA is not eligible to claim the deductions under Section 80EE.
- Stamp duty value of the property does not exceed Rs 45 lakhs.
- Loan must be sanctioned between 1st April 2019 to 31st March 2022.
Home Loan Tax Benefits on Joint Home Loans
If you have a joint home loan account, each borrower can claim home loan tax benefits on the taxable income:-
- The borrowers can claim up to 2 lakhs tax benefits on the amount paid towards the interest. This is covered under Section 24(b) and will be in proportion to the percentage ownership of each co-applicant.
- A deduction up to 1.5 lakh can be claimed against the amount paid towards the principal by co-owners. The only condition is that it is necessary to be the co-owners of the property to claim the home loan tax benefits.
How to Calculate Home Loan Tax Benefits?
The easiest way to calculate the home loan tax benefits is by using an online calculator. In the online calculator, all you have to fill in is home loan information, select Calculate, and a detailed tabulation will appear. The information needed for this calculation is as follows:-
- Loan Amount
- Interest Rate
- Loan Start Date
- Gross Annual Income
- Existing Deduction Under 80C
How to claim Home Loan Tax Benefits?
The home loan tax benefits need to be claimed at the time of ITR filing unless your employer is informed about it promptly.
In the ITR form, there is a section “deduction.” There you will have to include the following:
- Deductions under Section 80C: The contributions made towards PPF, EPF, LIC Premiums paid, and the principal repayment made towards the home loan. If the property is sold before five years, the deductions claimed under Section 80C for principal repayment will be added back to your income.
- Deductions under Section 80EE/EEA: This deduction is for individuals buying a home for the first time.
The following documents need to be submitted to claim home loan tax benefits:-
- Ownership details of the property.
- Loan document certificate with the visibility of the split between the principal amount and the interest paid for in EMIs.
- Document as proof that the construction of the house is completed or the date on which it was purchased.
- The taxpayer must show the document that the property was purchased in his name.
- Proof of the municipal taxes that have been paid during the year.
Planning to buy a house? Let us help you save taxes legally!
- Buying a house is one of the biggest tax planning opportunities in a person’s life, this requires careful analysis of one’s financial and family situations.
- Planning your taxes at the time of buying your first house has long-term impacts on your finances.
- Tax2win has expertise in personal taxation. Our experts would help you plan your taxes, to help you get the maximum tax benefits.
Frequently Asked Questions
Q- Can anyone planning to construct the house and sell it later claim home loan tax benefits?
Ideally, the property should not be sold within five years. If it is done, any tax deductions already claimed will be reversed.
Q- Who can avail of the home loan tax benefits?
The property owner has the right to avail of the home loan tax benefits. Also, if there is a co-owner, they can claim the benefits.
Q- Can the home loan tax benefit be availed when the property is under construction?
No. Pre-construction interest can be claimed only after the construction is finished.
Q- Can we take home loan tax benefits on two loans?
Q- Are there home loan tax benefits on the second house?
Currently, individuals can claim the benefits only on one property as self-occupied. But a proposal has been put forward regarding an individual claim of a second home as self-occupied property.
Q- Who is eligible to claim home loan tax benefits?
Individuals who have purchased a new house for rent or are self- occupied can claim the benefits under Section 24, Section 80C, and 80EEA of the Income Tax Act, 1961.
Do the ITR filing at Tax2Win and claim the tax benefits on the home loan today.
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