Home Loan Tax Benefit

How to claim your tax benefits on home loans?

Buying a house is like a dream come true for everyone. Living in your self-owned home, no matter how big or small it is, is an entirely satisfying experience. Homeownership also increases your sustainability and stability. You no longer have to worry about paying monthly rent or searching for a new house every time your landlord asks you to vacate their property.

Having said that, it isn’t easy to buy a house in India. You need to arrange a large amount of money to buy a housing property. Depending upon the size and location of the property, its cost can quickly run into several lakhs or even a few crores of rupees. A home loan can help you arrange the necessary finances to fulfil your dream of owning a house.

There are several benefits of using a home loan to buy a house. The most important thing is it allows you to buy your dream home and pay for it in easy EMIs spread over a long tenure of up to 30 years. Additionally, it protects you from buying fraudulent property since lenders usually check all property documents before disbursing home loans.

But do you know that you also avail of income tax benefits by taking a home loan? The Government of India has allowed certain home loan tax exemptions under sections 80C, 80EEA, and 24 of the Income Tax Act of 1961. You can avail of these tax rebates on a home loan while filing your annual Income Tax Return (ITR).

Home loan tax benefits

There are two components of a home loan – the principal amount and the interest amount. The home loan EMIs that you pay for your home loan consists of both these components. Income tax benefits on home loans are available against the repayment of the principal component as well as the interest component of a home loan.

Below is a list of home loan tax benefits available under various sections of the Income Tax Act of India:

1. Home loan tax benefits for the repayment of the principal component

As a home loan borrower, you can avail of home loan tax exemptions for repaying the principal component of your home loan. The amount paid as repayment of the principal component of a home loan by an individual borrower or a HUF is available for tax deductions under section 80C of the Income Tax Act. The maximum deduction allowed under this section in a financial year is Rs. 1.5 lakhs.

Under section 80C, however, you will also be permitted to deduct investments in other tax-saving instruments, including Public Provident Fund (PPF), Equity Linked Savings Scheme (ELSS), National Savings Certificate (NSC), and Senior Citizens Savings Scheme (SCSS).

An important point to note is that income tax benefits on a home loan for the repayment of the principal component are available only if the construction of your house has been completed. No deductions are allowed under this section for the repayment of the principal amount during the years for which your house was under construction.

Additionally, if you transfer the ownership of your house within five years of its purchase, you would not be able to claim any home loan tax exemption under section 80C. Also, the tax deductions under this section are available only if the payments or investments are made in the applicable financial year only.

2. Home loan tax benefits for the repayment of the interest component

You can also avail of home loan tax benefits for repaying the interest component of your home loan. Any amount paid towards the repayment of the interest component of a home loan is available for tax exemptions under section 24 of the Income Tax Act. In a financial year, the maximum tax deduction allowed under this section is Rs. 2 lakhs (increased from Rs. 1.5 lakhs in Union Budget 2014).

However, it’s important to note that this home loan tax exemption is available only for self-occupied housing properties. As per section 24, any income from housing property for which a home loan has been taken shall be reduced from the amount paid as interest on home loan and tax deductions would be calculated accordingly.

It is also important to note that income tax benefits on a home loan under section 24 are deductible on the payable basis or accrual basis. It means that you can claim income tax deductions under this section even if you have not made the payment during the applicable financial year. This is contrary to section 80C which allows for deductions only on the payment basis.

Moreover, if the property is not acquired or constructed within five years after the end of the financial year in which the home loan was taken, the maximum income tax benefit allowed under section 24 would be reduced from Rs. 2 lakhs to Rs. 30,000 only.

3. Income tax benefits for first-time homebuyers

If you’re a first-time homebuyer, you can avail of additional home loan tax benefits under section 80EEA of the Income Tax Act. Under this section, tax deductions of up to Rs. 1.5 lakhs are allowed for home loan borrowers who are buying their first house. This deduction was introduced into the Income Tax Act recently during the 2019 Union Budget of India.

However, tax deductions under section 80EEA are available only in the following cases:

• If the value of the purchased property remains within Rs. 45 lakhs

• If the home loan is sanctioned between 1st April 2019 to 31st March 2021

Apart from this, a tax benefit of up to Rs. 50,000 is allowed under section 80EE of the Income Tax Act for first-time homebuyers opting for a home loan of under Rs. 35 lakhs.

4. Deduction of stamp duty and registration fees

When you purchase a residential property, you’re required to pay stamp duty and registration charges to your state Government. You can avail of tax deductions for paying these charges for the acquisition of your housing property. These charges are usually not included in the home loan amount sanctioned by lenders.

Tax deductions for stamp duty and registration charges are allowed under section 80C of the Income Tax Act, up to a maximum of Rs. 1.5 lakhs. You can claim these deductions only in the financial year in which you have made the payments.

How to claim tax benefits on home loans?

The first step to claim your home loan tax benefits is calculating maximum tax deductions that you can avail of on your home loan. To calculate tax savings on a home loan, you can use an online income tax calculator and enter a few basic details, such as your home loan amount, interest rate, annual income, etc.

You can then claim your home loan tax exemptions while filing your ITR after the end of a financial year. Make sure that you’re the owner or co-owner of the house and have obtained a home loan interest certificate from your lender. If you’re a salaried professional, you can hand over these documents to your employer to adjust the tax deductible at the source.

To Conclude

A home loan is a convenient way to arrange finances for buying your dream home. You can avail of a home loan to buy your house and repay the amount in easy EMIs, spread over a tenure of up to 30 years. A home loan also allows you to avail of several tax benefits under sections 80C, 80EEA, and 24 of the Income Tax Act of India.

With Poonawalla Fincorp, you can avail of a gamut of loans, including home loans, personal loans, etc., and fulfil all your dreams. Visit our website to know more details about our products.

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