Buying your own house is a dream come true for everyone. While a home loan can assist you in purchasing a home, it can also be an expensive affair. However, the multiple tax benefits that come with such a loan allow you to save money year after year. Take a look at how you can make the most of these benefits.

If you are paying EMI for the home loan, it has two components:

1) Interest payment

2) Principal repayment.

Home Loan Tax Sections in India

The following sections of the Income Tax Act, 1961, are applicable to help borrowers with tax savings on a home loan.

• Section 24B
• Section 80C
• Section 80EE
• Section 80EEA

Tax Benefits on Home Loan under corresponding Sections

• Section 24B

The section provides home loan tax deduction benefits on the interest components of EMIs paid in a year. An individual can avail of a home loan for an under construction or ready-to-move-in property and claim interest deduction on repayments thereto. The deductions applicable as per the stage of construction, nevertheless, vary. Take a look.

Interest Deduction on a Ready-to-Move-In Property

Home loan borrowers can claim interest deductions of up to Rs.2 lakh on a fully constructed property used for residential purposes. Tax saving on a home loan does not come with a limit in case of a property purchased to let out. For a property purchased and under construction, such deduction is applicable only after the construction is complete.

Interest Deduction in the Pre-Construction Period

Income tax deductions for annual interest paid on a home loan in the case of the pre-construction period is available in 5 equal instalments. The applicability has been established in view of the rule that an under-construction residential property purchased via a home loan must be completed within 5 years from the date of loan approval.

• Section 80C

Home loan Principal Deduction

A maximum annual deduction of Rs.1.5 lakh is allowed for the home loan principal repaid towards the total loan liability. Such deductions are applicable for every year of repayment until the loan liability is paid in full. This deduction is applicable only if the property is not sold within 5 years of purchase.

Stamp Duty and Registration Charges Deduction

The deduction limit of Rs.1.5 lakh can also include the payment of stamp duty and registration fees, claimable only for the year of such payment. Both the deductions are also applicable to joint home loan borrowers with a maximum deductible limit of Rs.1.5 lakh available individually. The joint borrowers must be property co-owners as well to claim the deduction.

•  Section 80EE

First-time homebuyers can also claim an annual interest deduction of up to Rs.50,000 under Section 80EE. To claim such deduction, the property purchased must not be priced over Rs.50 lakh with the home loan amount not exceeding Rs.35 lakh.

•  Section 80EEA

The section allows an additional tax saving on home loan of up to Rs.1.5 lakh to first-time home buyers if the property’s stamp value remains within Rs.45 lakh. It is applicable only for home loans sanctioned between 1st April 2019 and 31st March 2020 and the borrower does not claim the benefits u/s 80EE. Or 24(b).

Max Tax Benefits on Home Loan under Sections.

The following table gives you the tax benefits under the corresponding sections of the Income Tax Act, 1961.

How to Claim Tax Benefits on Home Loans?

It is straightforward to get tax benefits on a home loan. The processes to claim your tax deduction are outlined here.

Step 1: Determine the amount of the tax deduction to be claimed.

Step 2: Check to see if the house is registered in your name or if you are a co-borrower on the loan.

Step 3: Give your employer your home loan interest certificate to amend the tax deductible at source.

Step 4: If you do not complete the preceding steps, you will be required to file your tax return on your own.

Step 5: You are not required to submit these documents anywhere if you are self-employed.

Simply keep them on hand in case the IT staff has any further questions.

How to Calculate Tax Benefits on a Home Loan?

Using an online calculator to calculate your tax benefits on a home loan is the simplest method. Simply enter your home loan information and click calculate to see a complete tabulation. The following are the details you’ll need in most cases:

• Gross Annual Income Existing Deduction Under 80C/D
• Loan Amount
• Tenure
• Interest Rate
• Loan Start Date

Is Top-up Home Loan Eligible for Tax Deduction?

If a top-up home loan is used for the acquisition, building, or renovation of a residential property, it is eligible for tax incentives under Section 80C and Section 24. You can split the EMI and get income tax benefits under Sections 80C and 24, respectively.

Tax Deductions on Joint Home Loans

Applying for a home loan jointly not only enhances your home loan eligibility but also the tax benefits. Individuals taking a home loan jointly can avail home loan tax benefits individually. This implies that if two individuals have applied for a joint home loan, each can claim tax benefit of up to Rs 1.5 lakh and Rs 2 lakh on their home loan principal and interest, respectively.

To claim this deduction, they should also be co-owners of the property taken on loan. So, a loan taken jointly with your family can help you claim a larger tax benefit.

Tax Deductions on Second Home Loan

With effect from Assessment Year 2020-21, the tax deduction on home loan interest shall be allowed in respect of two self-occupied residential properties. However, the aggregate amount of deduction under this provision shall remain the same i.e., Rs. 30,000 or Rs. 2 lakh, as the case may be, otherwise the deduction is limited to Rs 30,000.

Home Loan Tax Benefits FAQs

• Is it possible to claim tax deductions under both Sections 80EE and 24?

If a person meets the requirements of both sections, Section 24 and Section 80EE, he or she is eligible for benefits under both. To commence the same, the person must first exhaust the Section 24 limit before claiming the further benefit under Section 80EE.

• What are the tax deductions on a joint home loan?

In their Income Tax Return, each co-owner who is also a co-applicant in the loan can claim a maximum deduction of Rs 2,00,000 for interest on the house loan. The entire interest paid on the loan is divided among the owners in proportion to their stake in the company. It goes without saying that the borrowers’ total interest claim cannot exceed the total interest paid on the loan.

• Who can take advantage of house loan tax deductions?

Tax benefits are available to the property owner. If the spouse is a co-borrower, they are also eligible for tax benefits. In the case of a joint loan, each participant has the right to sue for their share of the obligation.

• The property I purchased with a home loan is still under construction. Can I claim tax benefits?

You cannot claim tax deductions till the construction is completed. Once it is completed, you can claim an aggregate of interest paid for the period prior to the year of taking possession. This can be claimed in five equal instalments from the year in which construction is completed.

• Can I claim tax benefit on two home loans?

Generally, tax benefits can be availed only on the house claimed as self-occupied. In case if you own two houses, only one of them can be claimed as self-occupied property. The other house will be considered as a let-out property and will be taxed as per the tax slab applicable. The notional rent on your second house will be added to your income.

• Can my spouse claim income tax deduction if we buy a house jointly?

Yes, you can claim separate deductions in your IT returns if your spouse is employed and has a separate source of income. You can both claim deduction under Section 80C up to Rs.1.50 lakh from your total income. If the house is jointly owned, each co-owner can claim deductions up to Rs.2 lakh on account of the interest on borrowed money.

• Is the Home Loan principal part of Section 80C?

Yes, home loan principal is part of Section 80C of the Income Tax Act. Under this section, an individual is entitled to tax deductions on the amount paid as repayment of the principal component on the housing loan. An amount up to Rs.1.50 lakh can be claimed as tax deductions under Section 80C. However, the tax benefit on the repayment of the principal amount can be claimed only after the house is constructed. The section does not allow deductions for the repayment of the principal component during the years the house was being constructed.

• Are there any other tax deductions I can claim with respect to interest payment on the home other than the interest under Section 24(b)?

You can also claim tax deductions in respect of the interest on the housing loan under Section 80EE of the Income Tax Act. Under this section, an individual is entitled to claim tax deductions up to a maximum amount of Rs.1.5 lakh during a financial year.

• Can I claim tax benefit on the principal repaid on a housing loan?

Yes, you can avail tax benefits on the principal amount repaid on the home loan from total income under Section 80C.

• What is maximum amount I can avail for deduction of interest paid on my housing loan?

Under Section 24 of the Income Tax Act, an individual can claim tax deduction of the interest payment on the housing loan up to a maximum amount of Rs.2,00,000.

Apply for a home loan through MoneyPlus to get a host of benefits such as lowest interest rate, minimal documentation, quick disbursement and hassle-free experience. 

Got more home loan questions? Call +91 7045667799 or chat for free consultation.