Home Loan Tax Benefit: Income Tax Deduction on Housing Loan

When you get a home loan , it is not enough to understand only the details and terms of repaying the loan. Home Loans offer several income tax benefits you should know to get significant savings and financial advantages.Here are the various ways to save money by taking advantage of the income tax benefits offered on Home Loans. Also read : Everything About Housing Loan Terminology

Housing Loan tax benefits provide financial benefits that make homeownership more affordable and rewarding. Using these benefits, you can save on income tax and take the load of loan repayment.For instance, deductions on interest and principal payments reduce taxable income, lowering tax liability. Here are the important ones you should know once you get a Home Loan.

Under Section 24 of the Income Tax Act , you can claim various tax benefits, reduce the income tax burden, make loan repayment more manageable, and improve home affordability and financial rewards.You can claim tax benefits by meeting the following conditions:

• Deductions on your Home Loan's interest and principal components lower your taxable income. The maximum deduction you can get under this section is ₹2 lakhs.
• To avail of the tax benefits under Section 24, the property must be in your name and be self-occupied or rented.

For instance, let us consider Mr A paid ₹3 lakhs as Home Loan interest during the financial year. Under Section 24, he can claim a maximum deduction of ₹2 lakhs-this significant reduction in taxable income results in substantial tax savings. Also read : Non-Encumbrance Certificate: What It Is and Why Is It Important for Every Homeowner?

Suppose you have purchased an under-constructed house but are yet to move in and are paying the EMIs. In that case, you can claim deductions on the interest amount paid once the construction is completed or when you acquire possession of the property.Under the Indian Income Tax Act, you can write off pre-construction interest as a type of interest. You can claim this interest in five equal instalments, starting from the year of property acquisition or completion of construction, with an upper limit of ₹2 lakhs. It means you can claim tax benefits on the interest paid during the construction period.For instance, suppose you have a Home Loan for construction and are paying ₹15,000 in interest monthly. The construction is completed in two years, meaning you have been paying interest for 24 months(i.e. 24 x 15,000. You can claim the pre-construction interest of ₹3.6 lakhs in five equal instalments from the following financial year.However, Section 24(b) restricts the maximum interest deduction to ₹2 lakhs, including the current year's and pre-construction interest. Also read : An Overview of Stamp Duty & Registration Charges for Homebuyers

Section 80C provides deductions on the principal component of a Home Loan, but the following conditions are still applicable:

• You can claim a maximum of ₹1.5 lakhs per year from taxable income on principal repayment for both self-occupied and let-out properties.
• You may include stamp duty and registration charges, but you can only claim them once.
• Completion of property construction is required to claim this deduction.
• Selling the house within five years of possession reverses the deduction claimed, adding it to your income for the year of sale.

This subsection allows tax benefits of up to ₹1.5 lakhs on the interest component paid on a Home Loan. You can avail this benefit in addition to the exemption of ₹2 lakhs under Section 24(b). However, to claim this tax benefit, you have to fulfil certain criteria:

• The property value must be ₹45 lakhs or less.
• The Home Loan should have been obtained between 1st April 2019 and 31st March 2022.
• As of the date when the loan was sanctioned, the taxpayer should not have any other residential property in their name.

If you avail of a Housing Loan with your spouse or a family member, each of you can claim deductions for interest paid up to ₹2 lakhs. A deduction on the principal paid up to ₹1.5 lakhs each is also available.The applicants must co-own the property to claim this deduction, making a joint Home Loan more beneficial for tax purposes. Here are the deductions you can claim for a joint Home Loan:

1. Interest Deductions

i) Section 24(b)

• Maximum Deduction: ₹2 lakhs
• Terms: For buying or constructing a new house, completed within five years from the loan's availed date.

ii) Section 80EEA

• Maximum Deduction: ₹1.5 lakhs
• Terms: For property with a stamp value of up to ₹45 lakhs.

iii) Section 80EE

• Maximum Deduction: ₹50,000
• Terms: For a loan amount of up to ₹35 lakhs and property value of up to ₹50 lakhs.

2. Principal Deductions

• Maximum Deduction: ₹1.5 lakhs
• Section of the Income Tax Act: 80C
• Terms: Do not sell the property before completing five years of possession.

3. Stamp Duty Deductions

• Maximum Deduction: ₹1.5 lakhs
• Section of the Income Tax Act: 80C
• Terms: Claim it in the same financial year.

Tax benefits on Home Loans for owning a second property allow you to claim the entire paid interest amount. Proposed changes may treat the second self-occupied home as a regular property, providing additional tax benefits. Using these Home Loan tax benefits can significantly reduce taxable income.

1. Calculate the tax deduction to be claimed based on your Home Loan.2. Ensure that the house is registered in your name or you are a co-borrower.3. Submit your Home Loan interest certificate to your employer for tax deduction adjustment at the source.4. If you have not completed Step 3, file the tax return independently and claim the deduction.5. If you are self-employed, keep the necessary documents handy in case of future queries from the IT department. Note: NRIs have different eligibility conditions for obtaining Home Loan taxation benefits in India. Click here to know more. Moreover, a good credit score can increase your chances of getting lower interest rates, increasing your proportionate savings on tax. Therefore, before heading to the nearest bank, consider how CIBIL scores are important for Home Loans .

Home Loan tax benefits offer several financial advantages and reduce tax load.

• Section 24(b) grants deductions on interest and principal payments, and you can gradually claim pre-construction interest.
• Section 80C offers deductions on principal repayments.
• Section 80EEA provides additional tax benefits on interest paid.
• Joint Home Loans enable individual deductions.

Before obtaining a Home Loan for tax advantages, you must consider specific tax laws, interest rates and loan tenure and have proper documentation. Also, pay attention to the process of claiming tax benefits and the proposed advantages of owning a second property. These insights can help you get maximum savings on tax so that you can achieve your financial goals as quickly as possible.