Income Tax Benefit on Housing Loan Interest

Repayment components of a housing loan

When you repay the home loan as EMIs, you basically pay these EMIs towards two components of a home loan as follows:

• Principle Amount
• Interest payment

Tax benefits for a home loan apply to these two components differently, and the tax deduction for these two components falls under different Sections of the Income Tax Act.

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Summary of home loan tax benefits under different Sections of the Income Tax Act

Here is a chart showing the home loan tax benefits under the different sections of the Income Tax Act:

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Deductions for housing loan interest

Owning a home is a significant investment, and the Indian government offers tax relief to ease the financial burden. Here's a breakdown of the major deductions available for housing loan interest and other homeownership expenses:

Section 24(b): Standard Deduction

This is the most common deduction for housing loan interest.

• Deduction Amount: You can claim a deduction of up to ₹2 lakhs every financial year on the interest paid towards your home loan.
• Eligibility Criteria:
  • The property must be self-occupied (you or your family resides there).
  • The construction of the house must be completed within 5 years of loan sanction. If not, the deduction is limited to Rs. 30,000 per year.

Section 80EE (for Specific Period Loans)

This section offers an additional deduction benefit for loans taken during a specific period.

• Deduction Amount: An additional deduction of up to Rs. 50,000 per financial year can be claimed on the interest paid.
• Eligibility Criteria:
  • The house loan must have been sanctioned between April 1, 2016, and March 31, 2017.
  • There is no restriction on the property type (self-occupied or rented).
  • The amount of the loan should not exceed ₹35 lakh, and the property's value should be under ₹50 lakh.
  • At the time of loan sanction, the individual must not own any other house, therefore owning the house for the first time.

Section 80EEA (for affordable housing)

This section provides an additional tax benefit specifically for affordable housing loans.

• Deduction Amount: An additional deduction of up to Rs. 1.5 lakhs per financial year can be claimed on the interest paid. This can be claimed in addition to the standard deduction under Section 24(b).
• Eligibility Criteria:
  • The loan must have been sanctioned between April 1, 2019, and March 31, 2022.
  • The loan must be sanctioned for a property valued up to Rs. 45 lakhs.
  • The borrower must be a first-time homebuyer.

Deduction on principal repayment under Section 80C

In addition to the interest deduction, you can also claim a deduction for the principal amount you repay on your home loan under Section 80C of the Income Tax Act.

• Deduction Amount: The maximum deduction permitted under Section 80C is Rs. 1.5 lakhs per financial year. This includes your home loan principal repayment along with other eligible investments and expenses.

Deduction for registration charges and stamp duty under Section 80C

The stamp duty and registration charges incurred during the purchase of your property are also eligible for deduction under Section 80C.

• Deduction Amount: The entire amount of registration charges and stamp duty can be claimed as a deduction, subject to the overall limit of Rs. 1.5 lakhs under Section 80C.

Deduction for a joint home loan

If you have taken a joint home loan with another individual (spouse, sibling, etc.), both of you can claim separate deductions of up to ₹1.5 lakh for the interest paid and up to ₹2 lakh for the principal repayment on the loan. This can potentially lead to double the tax benefit compared to a single home loan.

• Eligibility Criteria:
  • Both borrowers must be co-owners of the property.
  • Each borrower must be included in the loan agreement and make EMI contributions.

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Impact of new tax regime on home loan tax benefits

The government introduced a new tax regime option in the budget. While it offers lower tax rates, it also affects the way you can claim deductions for your home loan. Here's how the new regime impacts home loan tax benefits:

Reduced Benefits:

• Section 24(b) Deduction (Interest on Self-Occupied Property): This common deduction for interest paid on self-occupied properties is not available under the new tax regime.
• Section 80C Deductions (Principal Repayment, Stamp Duty & Registration): Deductions available under Section 80C, which includes the principal amount repaid on your home loan, stamp duty, and registration charges, are also not available in the new regime.

Benefits Still Available (For Rented Property):

• Section 24(b) Deduction (Interest on Rented Property): If you own a rented property, you can still claim a deduction for the interest paid on your home loan under the new regime. However, the deduction is limited to the taxable rent received from the property.

Struggling to calculate taxes with tax benefits on housing loan interest? Our team of tax experts is here to help you calculate your taxes and file your income tax return while maximizing your tax refund. Don’t wait for the last date to file ITR; Book eCA Now!

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