What are the tax benefits on home loans and how to avail them?

What are the tax benefits on home loans and how to avail them?

Buying a home in today’s economy and real estate market is not an easy. Apart from the expenses of the home itself, countless other aspects can add to the financial burden during the process. However, expenditure should not be a factor that deters people away from their dreams. 

What are the tax benefits on home loans and how to avail them?

It is why the government and other institutes at different levels provide their customers with several offers and benefits on home loans. Thinking forward, they have also come up with plans and schemes to help the citizens of India avail of different tax benefits that will make their dream homes more accessible. 

Being aware of the benefits that one can reap would help them choose the best possible one with the maximum potential to save money. 

Here are Tax Benefits Under Various Sections

A home loan consists of the principal repayment and the interest payments. As introduced in the Income Tax Act, tax deductions are available under both these categories and the different sections of the Act.

Also Read – Which is Better for Home Loan Bank or NBFC?

  • Section 80EE – Section 80EE allows the person to redeem tax benefits of up to Rupees 1.5 lakh. It is available on the interest component that is paid on a home loan. This can be claimed in case the value of the property is below 50 lakh INR, and the loan should not exceed 35 lakh INR. For an interest paid for affordable housing-related home loans, an additional 1.5 lakh INR can be claimed for tax deduction under this section. 
  • Section 80C – Under this section, the tax deduction of an amount – of 1.5 lakhs INR (max) can be availed per financial year. Only once the construction of the residence is complete can this be availed on the principal repayment portion of the EMI. 
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Additionally, there is also a tax deduction on the stamp duty and registration fees but within the overall limit of 1.5 lakhs INR that was applied to the principal repayment. If you’re planning to take a home loan to complete the residence construction as per your requirements, you can take help of an online home loan calculator to know how much premium you’ll have to pay for a particular home loan amount. 

Also Read – A Beginner’s Guide to Available Mortgages for Potential Homeowners

  • Section 24 (b) – This applies to a self-occupied house where a maximum tax deduction of 2 lakhs INR can be claimed from the annual gross income. The condition would be that the construction and acquisition of the house be completed within 5 years. The loan must be taken for construction/acquisition purposes only. If the 5 years’ time frame is exceeded, deductions can be availed on the interest of the loan (for purchase, construction, repair, etc.). Renting out the property can also get you tax deductions. 
  • Section 80EEA This added section was promoted in the Budget of 2019 that provides a deduction for a max value of 1.5 lakh INR if the stamp value of the property is less than 45 lakh INR. If the claim is made under this section, no other claim can be made under section 80EE. 

Tax Benefit for the Different Types of Home Loans

Also Read – Simple and Effective Ways to Calculate Housing Loan EMI

  • Joint Home Loan – For this type of home loan, each holder can claim a deduction in the home loan interest up to 2 lakh INR. Additionally, the principal repayment under 80C can be availed up to 1.5 lakh each in the tax returns. It would be possible if they are co-owners of the property on taking the loan. 
  • Property Under Construction Loan – Paying an EMI for a loan in a scenario like this would help to claim interest on the housing loan as a deduction after the completion of the construction. Both pre-construction and under-construction periods can be counted. 
  • Second Home Loan – Tax benefits can be claimed on payable interests for a second property. In other words, the entire interest amount can be reclaimed. The second property can also be deemed self-occupied, which is an added benefit.
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Steps to Claim Tax Benefits

Claiming the tax benefit is an important step and making sure that everything is in place would be vital to receive timely and uninterrupted advantages.

  1. Study the income tax benefits of the different types of loans available. Before heading to the income tax benefits, you can consider using an income tax calculator to ensure you further check the benefits for the right income slab.
  2. Ensure the registry of the property in the owner’s name 
  3. Submit the home loan certificates and documents that can be deducted at the source. 
  4. Adjust the TDS value as needed after receiving a certificate from the bank or financial institution.
  5. Understand the value of the tax benefit with the help of online tools like calculators.

Also Read – The Best Way to Finance a Home: Residential Financing Basics

Do not compromise on the benefits that you can receive regarding tax deductions on home loans. Educate yourself on the different sections of the Income Tax Act and apply for the most beneficial category for you. Have the documents in place and secure to avoid any unwarranted complications.

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