Sunday, February 25

Understand the Basics of Home Loan Income Tax

Property prices have increased considerably over the last few years. Real estate has become expensive and it has now become very difficult for a middle-class person to be able to afford a decent home without the help of a home loan. It is therefore not very surprising that the popularity of home loans has increased considerably over the last few years. There is no dearth of lenders in the market offering home loans these days. Borrowers should therefore learn to negotiate and avail themselves of a lucrative deal. With so many lenders in the market, it is now easier than ever to avail of a low-interest home loan deal along with a suitable repayment tenor and desirable loan amount.

Whether you are planning to avail of a home loan or if you already have a home loan running, you must familiarize yourself with the concept of home loan income tax benefits. The government of India offers home loan income tax benefits to its citizens using which borrowers can save up to Rs.3.5 Lakh or higher in taxes each year. In this article, we talk about the home loan deductions in income tax and discuss in detail the various sections of the Income Tax Act that deals with home loan tax deductions on various components of a home loan. 

Home Loan Tax Deductions Available Under Section 80C of the Income Tax Act 

Section 80C of the Income Tax Act deals with tax deductions available on the principal component of the home loan. The maximum limit specified for tax deductions under this section is Rs.1.5 Lakh. Other than on the payments made towards the repayment of the principal component of the home loan, a borrower can also claim tax deductions on payments made towards stamp duty and registration costs under this section of the Income Tax Act. Borrowers should also know that other than the home loan income tax deductions available on the principal component of a home loan, Section 80C also deals with other tax-saving instruments, such as national pension scheme, equity linked saving scheme, PPF, National Savings Certificate, Fixed Deposits, etc. The combined limit for tax exemption on all these tax-saving instruments mentioned under Section 80C is Rs.1.5 Lakh.

Home Loan Tax Deductions Available Under Section 24b of the Income Tax Act 

Unlike Section 80C of the Income Tax Act which deals with several different tax-saving instruments, Section 24b deals with only home loan income tax benefits available on the interest component of the home loan. Section 24b of the Income Tax Act states that borrowers can claim tax deductions up to a maximum of Rs.2 Lakh on payments made towards the repayment of the interest component of the home loan.

In the case of a joint home loan availed of by a husband and wife together, both the partners can claim tax benefits separately under both Section 80C and Section 24b of Income Tax Act. Thus, together, a husband and wife together can claim tax deductions up to Rs.7 Lakh under Section 80C and Section 24b of the Income Tax Act.

Home Loan Tax Deductions Available Under Section 80EE of the Income Tax Act 

Section 80EE of the Income Tax Act offers additional benefits and allows home loan borrowers to claim an additional tax benefit of Rs.50,000 provided they meet the following conditions: 

– The borrower must have availed of the loan between April 1, 2016 and March 31, 2017. 

– The value of the loan must not be higher than Rs.35 Lakh and the value of the property purchased with the home loan must not exceed Rs.50 Lakh. 

– At the time of the sanctioning of the loan, the home loan borrower must not have had any other property in their name. 

Home Loan Tax Deductions Available Under Section 80EEA of the Income Tax Act

Home Loan Tax Deductions Available Under Section 80EEA of the Income Tax Act 

Section 80EEA of the Income Tax Act states that home loan borrowers can claim an additional home loan tax benefit up to a maximum of Rs.1.5 Lakh per annum on payments made towards the interest component repayment of the home loan provided they meet the following conditions: 

– They should have availed of the loan between April 1, 2019 and March 31, 2020. 

– The stamp value of the property purchased with the home loan must not exceed Rs.45 Lakh on the day of sanctioning of the home loan. 

– The home loan borrower must have been a first-time home buyer and must not have had any other property in their name at the time of sanctioning of the loan.

Final Words 

The Government of India has always promoted homeownership and one of the ways in which the government encourages citizens to invest in the real estate sector is by offering tax benefits on home loans. By familiarizing themselves with the tax benefits available under various sections of the Income Tax Act, one can save a considerable amount of money in the form of tax savings each year. We hope this article helped you develop an understanding of the various home loan income tax benefits available to the citizens of India. Further, all home loan borrowers are advised to use an income tax calculator at the beginning of each financial year and figure out their tax obligation for the entire year. Doing this will help borrowers plan their investments in such a way that they can maximize their savings and save the maximum that they can by way of the various income tax benefits available under various sections of the Income Tax Act.  

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