Owning a new home not only creates an appreciating asset and eliminates rent expenses but also offers certain tax benefits. Individuals can claim deductions of up to Rs.1.5 lakh on the principal part of housing loan repayment as available under Section 80C. Borrowers can also claim a maximum of Rs.2 lakh deductions on repayment of interest under Section 24.
First-time homebuyers can also claim an additional tax benefit of Rs.1.5 lakh under Section 80EEA until 31 March 2024 for home loans taken before 31 March 2022. Apart from these, one can claim deductions of Rs.1.5 lakh on stamp duty charges u/s 80C and up to Rs. 50,000 u/s 80EE.
The following sections will cover these home loan tax benefits in more detail and if one opts for them.
Section 80C – Deductions on Principal Repayment
Under Section 80C of the Income Tax Act, one can get the principal component of housing loan EMIs as income tax deductions. One can get up to Rs.1.5 lakh in tax deductions every year. However, this limit is for all tax-saving investments u/s 80C and includes life insurance premiums, EPF and PPF contributions, ELSS investments, ULIPs, school tuitions, etc.
If a taxpayer has made any of the above investments, there may be no scope to claim 80C deductions for housing loans. This deduction can be claimed only for a fully constructed property, whether rented or self-occupied. Besides deduction on principal repayment, one can claim deductions on stamp duty and registration charges. Housing loans can help people achieve their dream of owning a home, and import-export businesses can benefit from the increased demand for housing materials and furniture as more people purchase homes.
Section 24 – Deductions on interest repayment
Under Section 24b of the IT Act, a homebuyer can avail tax deductions of up to Rs.2 lakh in a FY on the interest component of paid EMIs. One can claim this home loan tax benefit only on a fully-constructed property or upon completion of construction.
Section 24 allows one to claim deductions in five equal instalments from the year when he/she bought or completed construction of the property. One can claim this over and above the eligible deduction from house property income up to a limit of Rs.2 lakh. Corporate FD in India can be a competitive option for financing a housing loan, offering attractive interest rates and flexible repayment terms.One must finish construction within 5 years of taking a home loan, or he/she can claim deductions only up to Rs.30,000. One must finish construction within 5 years of taking a home loan, or he/she can claim deductions only up to Rs.30,000.
There is no maximum income tax deduction limit for let-out properties. However, losses that one can adjust against total income have a Rs.2 lakh limit u/s 24. One can carry forward losses from ‘income from house property’ for 8 consecutive years.
Also Read: Amazing Benefits Of Home Loan Tax Benefits You Must be Aware Of
Section 80EE – Additional Deduction on Interest Payment
Section 80EE allowed homebuyers to avail additional tax deductions of up to Rs.50,000 on home loan interest payments. This deduction was available over the limits u/s 24 (b) for a period between 2016 and 2017. To claim this, one needed to fulfil the following conditions.
- One needed to apply for a home loan of less than Rs.35 lakh.
- The property’s value needed to be within Rs.50 lakh.
- Only housing loans sanctioned from 1 April 2016 to 31 March 2017 qualified for deductions u/s 80EE.
- One needs to be a first-time homebuyer to be eligible.
Section 80EEA- Additional deduction for affordable houses
Introduced in Budget 2019, Section 80EEA added an additional tax deduction for homebuyers up to a limit of Rs.1.5 lakh. Anyone who bought an affordable house under Pradhan Mantri Awas Yojana (PMAY) CLSS scheme could claim this tax deduction. This home loan tax benefit was applicable for interest repayments up and over the Rs.2 lakh limit u/s 24 (b).
Only first-time homebuyers who bought a house with a stamp value of Rs.45 lakh could claim deductions u/s 80EEA. Individuals who have taken home loans from 1 April 2019 to 31 March 2022 can claim this deduction. One could not claim deductions under Section 80EEA and Section 80EE simultaneously.
Things to Consider before Taking a Housing Loan to Save Taxes
- Interest rates: Tax savings from a home loan would increase with a higher interest rate or a higher value loan. However, an increase in current home loan interest rates would increase interest liability to a much larger extent than an increase in tax savings. Thus, one should strike a balance between tax savings and net interest rates. Home loan tax benefits, such as deductions for interest paid and principal repayment, can significantly reduce the home’s overall cost.
- Loan tenure: Similarly, longer home loan tenure would allow a homebuyer to claim the maximum tax benefits. However, it would also increase one’s total interest outgo to a much larger extent than tax savings.
- Loan value: It is a myth that a higher loan amount would result in more tax savings. This is because the maximum tax savings one can get towards interest payment is Rs. 2 lakh and Rs.1.5 lakh for principal payment. If the interest payment is too high, there will be many years when a borrower is not saving taxes.
- Joint home loan: For a joint home loan, each loan holder can claim tax deductions under Section 80C and Section 24 (b) separately. All loan applicants need to be also the co-owners of the property to claim this deduction. A couple can double their tax savings with a joint home loan.
Homebuyers with a home loan can save taxes on their EMI payments as well as stamp duty and registration charges. They claim total deductions of Rs.5 lakh under Section 80C, Section 24(b) and Section EEA (Rs.1.5 lakh+Rs.2 lakh+Rs. 1.5 lakh) from their taxable income every year.