Income Tax Benefits on Home Loan: How to Save Tax on Home Loan?

Home Loan Tax Benefits Summary

---

Income Tax Benefit on Home Loan

Yes, if you are paying interest & principal amount towards a loan, you can utilize such amount to reduce your tax liability.

To gain more understanding of the provisions, let's divide the discussion of tax benefits in two parts:

• Tax benefits on payment of interest;
• Tax benefits on repayment of principal amount;

A house property for which a loan has been taken may either be a self-occupied property or a rented property. That is to say, the person who has taken the loan shall either himself occupy the property or shall let it out on rent. So let's analyze both the above-mentioned points and understand how we shall be benefit in each of the cases.

---

Tax Benefits on Payment of Interest

Deduction for Interest Under Section 24B

Under Section 24 of the Income Tax Act, the deductions available for interest paid on a home loan are as follows:

• Self-Occupied Property:
  
  • Maximum Deduction: The maximum deduction for interest paid on a home loan for a self-occupied property is Rs 2 lakh per financial year.
  • Conditions:
    
    • The loan must be taken for purchasing or constructing a house.
    • If the loan is taken for construction, the construction must be completed within five years from the end of the financial year in which the loan was taken.
• Let-Out Property:
  
  • No Upper Limit: There is no upper limit for claiming a deduction on the interest paid on a home loan for let-out properties. This means you can claim a deduction on the entire interest paid.
• Delayed Construction:
  
  • Reduced Deduction: If the construction of the house is not completed within the stipulated time frame of five years, the deduction on the interest paid on the home loan is limited to Rs 30,000 per financial year.
• Overall Loss Under 'Income from House Property':
  
  • Claiming Overall Loss: The total loss under the head ‘Income from House Property’ can be set off against other heads of income up to Rs 2 lakh. This means that even if you have a higher interest outflow, you can only claim a net loss of Rs 2 lakh against other income sources.
  • Claim Period: This deduction can be claimed starting from the financial year in which the construction of the house is completed.

These deductions help homeowners reduce their taxable income, thereby providing significant tax relief on the interest component of their home loan EMIs.

---

Tax Benefit on Under Construction Home Loan

If you have bought an under-construction property, you will be eligible to claim tax benefits on the EMIs paid. However, this deduction for interest on a home loan is only available once the construction of the property is completed.

However, you can claim tax benefits on the interest paid between the period of completion of construction and the period of borrowing the loan in the following manner -

The Income Tax Act allows you to claim a deduction for pre-construction interest. You can deduct this interest in five equal installments starting from the year the property is acquired or construction is completed. This deduction is in addition to the regular deduction you can claim from your house property income. However, the total eligible deduction is capped at Rs 2 lakh.

For instance, if you took a home loan for construction and paid Rs 10,000 a month in interest, and the house was completed in 2019 after two years, you can start claiming the pre-construction interest of approximately Rs 2.4 lakh. This can be deducted in five equal installments starting from 2019. The maximum interest deduction under Section 24(b), including both current-year interest and pre-construction interest, is capped at Rs 2 lakh.

However, if your home loan qualifies for a deduction under Section 80EEA, you can claim an additional deduction of Rs 1.5 lakh.

---

Principal Repayment Deduction Under Section 80C

You can deduct the principal paid on your home loan EMI for the year under Section 80C, with a maximum limit of Rs 1.5 lakh.

However, to claim this deduction, you must not sell the property within five years of possession. If you do, the deductions claimed earlier will be added back to your income in the year of sale.

---

Stamp Duty and Registration Charges Deduction Under Section 80C

In addition to claiming the deduction for principal repayment, you can also claim a deduction for stamp duty and registration charges under Section 80C, provided they fall within the overall limit of Rs 1.5 lakh.

However, you can only claim this deduction in the year when these expenses are incurred.

---

Deduction Under Section 80EE

Home buyers can claim an additional deduction under Section 80EE for a maximum of up to Rs 50,000. To be eligible for this deduction, the following conditions must be met:

1. The amount of loan taken should be Rs 35 lakh or less, and the property's value should not exceed Rs 50 lakh.
2. The loan must have been sanctioned between April 1, 2016, and March 31, 2017.
3. On the date of loan sanction, the individual must not own any other house, indicating they are a first-time house owner.

It's important to note that Section 80EE was reintroduced, but it is valid for loans sanctioned only until March 31, 2017.

Now that you know all about the tax benefits on home loans, it is also important for you to know that it is mandatory to file an ITR to claim all these deductions. ITR filing for FY 23-24 has started and filing your ITR now can help ensure that you don’t miss out on any deduction. File ITR with Tax2win experts now!

---