Buying a home is often a milestone in one’s life. It may come along with a home loan which makes it easy to bear the financial strain. Paying off a home loan may seem like a Herculean task but the Indian government provides a number of tax benefits to make it easier. At Today Finserv Consulting India, we think that an educated borrower is a powerful borrower.

Why Tax Benefits on Home Loans Matter?

Home loans are obligations that take a long time to pay off, stretching up to 20-30 years. In this duration, the interest and principal amount paid can be huge. Fortunately, the Indian Income Tax Act has provisions for deductions under Section 80C, 24 (b) , 80EE, 80EEA which provide considerable tax savings.

These deductions apply to:

• Properties that are occupied by the owner
• Properties that have been rented out
• Properties still being built, but with certain conditions
• Homebuyers who have not owned a property before

Tax deduction on the principal amounts repaid Section 80C

As per Section 80C of Income Tax Act, If the taxpayer incurs a home loan, he/she is allowed a maximum tax deduction of ₹1.5 lakh annually towards the principal repayment of the loan.

Eligibility Criteria

The house cannot be sold within 5 years of residing in the house. If it is sold earlier, the deductions claimed will be added back to your income.

Loan must be taken from a recognized financial institution or a bank.

The tax deduction will only be given post completion of the construction of the house and possession has been taken.

Includes

Stamp duty and registration charges (only in the year they are paid)

Tax deduction on interest portion for borrowed funds used – Section 24(b)

Self-occupied house gives home allocates an estimated rate of up to ₹2 lakh and in return the home owner must pay interest as part of the home loan to be withdrawn from an account.

Eligibility Criteria

• The finances are meant for buying or building a domicile.
• The domicile must be completed and habitable within 5 years from the last quarter of the fiscal year the finances are extended.
• For let out properties, they can deduct all of their interest for tax purposes, although loss from house property is still capped at ₹2 lakh under set-off rules.

Added Deduction for First Time Buyers – Section 80EE

As a new home buyer, you have the right to claim additional deduction of ₹50,000 yearly under Section 80EE.

Eligibility Criteria

• A loan sanctioned within the period of 1st April 2016 and 31st March 2017.
• The amount of the loan should not be more than ₹35 lakh.
• The property value shouldn’t exceed ₹50 lakh.
• At the time of sanction, the borrower should not have any other house.
• This is besides the upper cap of ₹2 lakh limit under Section 24(b).

Added Deduction Under Section 80EEA

Section 80EEA is an extension to 80EE and adds additional deduction of ₹1.5 lakh on the interest for affordable housing.

Eligibility Criteria

• A loan must be sanctioned between 1st April 2019 and 31st March 2022.
• The stamp duty value of the property should not be more than ₹45 lakh.
• At the time of loan sanction, the borrower should not possess any residential property.
• Block Claim 80EEA can be claimed even if section 80EE was not claimed.
• However, when you combine it with Section 24(b), you can claim as much as ₹3.5 lakh in interest deductions every year!

Tax Benefits Home Loan Joint Borrowers

In the event that the home loan is taken jointly, each borrower can claim deductions separately as follows:

₹1.5 lakh each under Section 80C (principal) and

₹2 lakh each under Section 24(b) (interest).

Conditions

• They both have to be co-owners of the property.
• Both need to have contributed towards the EMI payments.
• Tax Benefits for Properties Under Construction
• You are also entitled to pre-construction interest deduction under Section 24(b):
• Deductions are allowed in five equal installments beginning the year from possessing the property.
• The maximum deduction is still capped at ₹2 lakh for self-occupied properties.
• No Section 80C benefit can be claimed until possession is received.

Conclusion

If utilized effectively, home loan tax benefits can be a powerful financial aid. Borrowers can take advantage of these benefits using sections 80C, 24(b), 80EE, and 80EEAto reduce their tax liability and simultaneously build an asset.