Home loans simplify the process of buying a home. They make it easier for people from all financial backgrounds to afford a home. The borrowers are asked to repay the loan over a selected time frame, which considerably eases the burden of loan repayment, making home loans much easier to repay.
Further, home loans also make people eligible for housing loan tax benefits, which can make it possible for them to reduce their income tax liability by a significant margin each year.
This article sheds light on the housing loan tax benefits available to home loan borrowers. Read on if you are currently repaying a home loan or are planning to avail yourself of one in the near future.
Housing Loan Tax Benefits: All You Need to Know
Home Loan Tax Exemption Under Section 80C
Section 80C of the Income Tax Act covers several different tax-saving instruments and one of these is the home loan tax exemption available on the principal component of one’s home loan.
Under Section 80C, individuals repaying a home loan can claim housing loan tax benefits on payments they have made towards the repayment of the principal component of their home loan.
The maximum amount one can claim under Section 80C is Rs.1.5 Lakh.
This limit stands even if you have more than one home loan. Here are a few things that one must know about housing loan tax benefits under this section:
- Individuals who have availed themselves of joint home loans can claim housing loan tax benefits separately under Section 80C, thereby increasing the combined tax saving on home loans they are eligible for to Rs.3 Lakh a year.
- If a person sells their home within 5 years of buying it, the housing loan tax benefit they had claimed over the years gets reversed. More importantly, the income from the sale gets added to one’s overall income and is countable under the taxable income.
Housing Loan Tax Exemption Under Section 24b
Section 24b concerns itself with tax benefits available on home loan interest deductions. The maximum limit permissible under this section is Rs.2 Lakh and here is what else you must know about home loan tax benefits under this section of the Income Tax Act.
- As under Section 80C, joint home loan borrowers can maximize home loan benefits by claiming tax benefits separately under Section 24b of the Income Tax Act.
- For under-construction properties, homebuyers can claim home loan tax benefits on the interest component of their home loan after the property is fully constructed.
The home loan borrower can claim a post-construction interest in five installments spread over 5 years. However, the home loan interest deduction claimed on pre-construction and post-construction interest cannot exceed Rs.2 Lakh. - The maximum limit mentioned under Section 24b is applicable only to properties that the loan borrower actually inhabits. In the case of properties put out on rent, the entire amount paid towards the repayment of the interest part of the housing loan can be claimed as a housing loan tax benefit.
Housing Loan Interest Deduction Under Section 80EE and Section 80EEA
Section 80EE and Section 80EEA of the Income Tax Act offer additional home loan tax benefits to first-time homebuyers who have availed of home loans to invest in affordable housing. The maximum limit permissible under Section 80EE is Rs.50,000 and under Section 80EEA is Rs.1.5 Lakh.
However, one must know that no homebuyer can claim housing loan tax benefits under both these sections simultaneously. Further, several different conditions must be met if one wants to be considered eligible for housing loan tax benefits under either of these sections.
Final Words
Housing finance is one of the easiest and smartest ways to fund the purchase of your home. A home loan makes you eligible for housing loan tax benefits under various sections of the Income Tax Act and if you claim these tax benefits properly, you can be eligible for housing loan tax benefits up to Rs.5 Lakh a year.
The maximum tax benefit that one can claim increases further in the case of joint home loans. So, talk to a tax expert and ask them about what you can do to maximize tax savings on home loans.