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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.

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

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

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