Please call our toll free customer helpline 1800 102 1003 if you have any queries or face any issue on our website. We regret any inconvenience caused.

Dismiss

Fullerton India Home Finance Co. Ltd. is now SMFG India Home Finance Co. Ltd.

Thank you!
Our representative will contact you shortly
Error occurred while submitting data. Please try again after some time.
Fill in the details below

We will call you back as soon as possible

What are the Tax benefits can I Avail on my Home loan

Updated: Mar 09, 2022
What-are-the-Tax-benefits-can-I-Avail-on-my-Home-loan

In the Income Tax Act 1961, there are multiple provisions under which you can claim tax deductions to save money on income tax. And among all the categories of tax deduction, you can save most while paying off a home loan.

The tax deductions are part of relief by the government to make a home purchase more affordable and encourage citizens to invest in houses. This has a multiplier effect on the economy, as it creates jobs and improves consumption, contributing to the overall growth of the economy.

You can claim tax deductions on home loan repayments under Section 80C, Section 24, and Section 80 EE. However, to avail of the tax deductions, you need to fulfill the following two specific criteria:

  • A home loan must be used for the purchase or construction of the house property
  • The construction of the house property must be completed within 5 years from the end of the financial year, in which the loan was taken

If you are confused about how to avail of home loan tax benefits, read this article till the end to have a better understanding.

Home Loan Income Tax Deductions

A home loan EMI consists of two components- principal payment and interest payment. And the Income Tax Act allows claiming tax deductions on both components individually. Let’s discuss all the sections in detail.

Tax Benefits on Home Loan

Home loans come with several tax benefits that can help reduce the financial burden of buying a house. Borrowers can claim deductions on both the principal repayment and the interest paid on the home loan.

Under Section 24 of the Income Tax Act, the interest paid on a home loan is eligible for deduction up to INR 2 lakh per year for a self-occupied property. Additionally, under Section 80C, the principal repayment of the home loan is eligible for a deduction of up to INR 1.5 lakh. For properties that are rented out, there is no upper limit on the interest deduction under Section 24(b).

Tax Benefit Income Tax Act Section Maximum Deductible Amount
Principal Repayment 80C INR 1.5 lakh
Interest (Self-occupied property) 24(b) INR 2 lakh
Interest (Property not self-occupied) 24(b) No upper limit
Interest paid on property with the stamp value of INR 45 lakh or less. (For Home Loan Period between 1 April 2019 to 31 March 2022) 80EEA INR 1.5 lakh
Different Home Loan Tax Sections and Deductions
Section Component of Home Loan Maximum Rebate
24 Interest on Home Loan INR 2,00,000
80C Principal Repayment INR 1,50,000
80EEA First-time Home Buyers INR 1,50,000
80EE Additional Deduction for Interest INR 50,000
80EEA Additional Deduction for Interest for First-time Home Buyers INR 1,00,000

Section 80C

Section 80C is one of the popular tax deduction sections amongst the taxpayers as it allows to reduce tax liability by claiming deductions on 80C-compliant investments and principal repayments on the home loan.

You can claim a maximum tax deduction of up to Rs 1.5 lakh from your taxable income for the principal repayments. Please note that the INR 1.5 lakh limit is applicable to the whole of Section 80C and includes other components in Section 80C such as insurance policies, investment in ULIPs , etc. For instance, if you already have investments upto INR 50,000 under 80C, you can only claim tax benefit for the principal repayments of your home loan for an amount not exceeding INR 1,00,000.

Additionally, you can also claim a tax deduction on the payments made towards stamp duty and registration charges for the house property. It can be claimed only once a year and should be claimed in the same year the expenses were incurred.

Section 24

Under Section 24, you can claim a tax deduction of up to Rs 2 lakh on the total interest paid on a home loan during the financial year.

However, if the construction of house property is not completed within 5 years, one can claim a maximum tax deduction of only up to Rs 30,000.

Section 24 (b)

Section 24 (b) allows claiming home loan tax benefits on the interest amount paid towards the loan during the construction period. The tax deduction on interest paid during the construction period can be claimed in five equal installments from the date of completion of construction or the property is acquired.

In the home loan, the co-applicant carries the equal responsibility for the timely repayment of the loan amount along with the primary borrower. Therefore, in case of default, the co-applicant will take full responsibility in making payments towards repaying the home loan.

However, the total interest amount for tax deduction should not exceed Rs 2 lakh (including Section 24).

Section 80 EE

If you are a first-time homebuyer, you can claim an additional tax deduction of up to Rs 50,000 on the interest paid on a home loan every financial year under this section.

ITo be eligible for tax deductions under Section 80EE, the home loan amount should not exceed Rs 35 lakh and the stamp value of the house property should not exceed Rs 50 lakh.

Section 80 EEA

Under this section, a first-time homebuyer is eligible to claim an additional tax deduction of up to Rs 1.5 lakh on the interest paid on a home loan every financial year.

To be eligible for claiming tax deduction under Sec 80 EEA, the stamp value of the property should be Rs 45 lakh or less. The carpet area of the house should not exceed 645 sq ft in metropolitan cities and 968 sqft in any other city or town.

You cannot avail of the tax benefits under Sec 80 EE, if you have already availed of the home loan tax benefit under Sec 80 EEA.

This benefit is not available from Apr 01, 2022 onwards

Must Read:- 80EE vs 80EEA: Key Differences & Tax Benefits

Home Loan Tax Benefits to Co-applicant

A co-applicant in a home loan is also eligible for claiming tax deductions as per their contribution made towards repaying the home loan. However, you should note, to claim tax-deduction on home loan repayments, the co-applicant should be the joint owner of the property.

Applying for a home loan with a co-applicant helps to maximise tax savings by claiming a full deduction for the payments made towards the home loan.

How Much Tax Benefit on Home Loan Can be Availed by Individual Taxpayers?

An individual can claim income tax benefit on home loan of up to Rs 3.5 lakh under normal circumstances. Additionally, first time home buyers can save an additional sum of up to Rs 1.5 lakh on their taxable income.

In the case of a home loan taken jointly, with proper tax planning, both primary and co-applicants can get tax deductions on the entire sum paid towards home loan repayment.

With proper EMI and tax planning, you can get maximum tax benefits on your home loan, which helps to reduce your house ownership cost and gives you a sense of accomplishment.

Must Read : How A Home Loan Calculator Can Help You Calculate Tax Benefits

How Do I Claim Tax Breaks for Home Loans?

To claim tax breaks for home loans in India, follow these steps:

  • Collect Necessary Documents: Keep all documents related to your home loan, including the loan statement, interest certificate, and completion certificate.
  • Calculate Deductions: Calculate the interest and principal amounts eligible for deduction based on the provisions of Sections 24, 80C, and other relevant sections.
  • File the Income Tax Return (ITR): Include the eligible deductions in your ITR form under the appropriate sections.
  • Submit Proof: If requested by the Income Tax Department, submit the relevant documents to support your claim.
  • Verify: Double-check your calculations and claim before filing to avoid errors.

By following these steps, you can efficiently claim tax breaks for your home loan and reduce your taxable income.

How to Calculate Home Loan Tax Benefits

Calculating home loan tax benefits involves determining the eligible deductions under various sections of the Income Tax Act. Here's how you can do it:

  • Interest Calculation: Calculate the total interest paid on the home loan during the financial year.
  • Principal Calculation: Determine the total principal repayment made during the year.
  • Apply Section 24: Check if the interest amount is within the INR 2 lakh limit for self-occupied properties or the actual interest paid for rented or deemed rented properties.
  • Apply Section 80C: Ensure that the principal repayment amount is within the INR 1.5 lakh limit.
  • Consider Additional Deductions: If applicable, consider additional deductions under sections like 80EEA or 80EEB.
  • Calculate Total Deductions: Add up all eligible deductions to get the total tax benefit.

You can also use an online calculator to easily and accurately calculate the home loan tax benefits.

Conclusion

In conclusion, tax benefits on home loans in India can significantly reduce the financial burden of owning a house. By taking advantage of deductions under sections like 24, 80C, 80EEA, and others, individuals can save a substantial amount on their taxable income. It's important to keep track of the various provisions and eligibility criteria to maximize these benefits. If you're considering buying a home and want to explore financing options, consider SMFG Grihashakti for attractive home loan offers. Start your journey to homeownership with SMFG Grihashakti home loans today!

FAQ's

Is there any tax benefit on a home loan?

Yes, there are tax benefits available on home loans in India.

How much tax will be reduced if I take out a home loan?

The tax reduction depends on various factors, such as the loan amount, interest paid, and the applicable tax rates. You can claim deductions on both the principal repayment (under Section 80C) and the interest paid (under Section 24).

Can I claim both Section 24 and 80EE?

Yes, you can claim deductions under both Section 24 (for interest) and Section 80EE (additional deduction for interest for first-time home buyers), provided you meet the eligibility criteria for both sections.

Who is eligible to claim tax deductions on home loans?

Individuals and Hindu Undivided Families (HUFs) are eligible to claim tax deductions on home loans if they are the owners or co-owners of the property and the loan is taken for the purpose of buying or constructing a residential property.

Can I claim tax benefits on loans from friends?

No, tax benefits on home loans are only available for loans taken from specified entities like banks, NBFCs, financial institutions, or housing finance companies.

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

Yes, you can claim deductions on the principal repaid on a housing loan under Section 80C of the Income Tax Act, subject to a maximum limit of INR 1.5 lakh.

Is the Home Loan principal part of Section 80C?

Yes, the principal repayment of a home loan is part of Section 80C, which allows for deductions of up to INR 1.5 lakh.

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

Yes, you can claim tax benefits on the interest paid during the pre-construction period (up to 5 years) once the construction is complete, subject to certain conditions.

Disclaimer: *Please note that this article is for your knowledge only. Loans are disbursed at the sole discretion of SMFG Grihashakti. Final approval, loan terms, disbursal process, foreclosure charges and foreclosure process will be subject to SMFG Grihashakti’s policy at the time of loan application. If you wish to know more about our products and services, please contact us.

SMFG India Home Finance Co. Ltd. (Formerly Fullerton India Home Finance Co. Ltd.)
CIN number: U65922TN2010PLC076972
IRDAI COR No: CA0492

All rights reserved © - SMFG Grihashakti

Follow us LinkedIn facebook Instagram instagram Youtube