Know Income Tax benefits of Taking a Home Loan

Apart from helping you get funds to purchase your dream home, a home loan also enables you to reduce your tax liability. Read on to know more about the income tax benefits of taking a home loan.

When you apply for a home loan to purchase a home, you are eligible to get tax benefits. The benefits are covered under different sections of the Indian Income Tax Act, 1961. Let us look at some of the tax benefits you can get when you take a home loan.

Deduction under Section 24

A home loan has two components – the principal amount and the interest repayment. The interest portion of the EMI that you pay every month can be claimed as a deduction from your annual tax liability under Section 24 of the IT Act. But, the maximum deduction you can claim is Rs. 2 lakhs in a year. The deduction is available for both self-occupied home and rented property.

Deduction under Section 80C

Section 80C of the IT Act covers the principal portion of the home loan EMI But, remember, the maximum amount you can claim is limited to Rs. 1.5 lakhs. Also, to claim the deduction, you must meet specific prerequisites, including, you must not sell the property within five years from the date of possession. If you fail to meet this condition, the deduction claimed earlier will be reversed and added back as an income, and taxed accordingly.

Deductions under Section 80EE

Apart from the tax-benefits available on the repayment of principal amount and the interest components of EMI, you can claim an additional deduction to the tune of Rs. 50,000 under Section 80EE. But, to get the claim, you must meet the following conditions:

  • The loan amount should not be more than 35 lakhs
  • The value of the property purchased should not be 50 lakhs
  • The loan must be sanctioned between April 2016 and March 2017
  • Lastly, as on the date of loan approval, you must own any other real estate property in any part of India

So, if you are availed a loan during the said period, apart from the home loan at low interest rate, claiming this deduction can help you save a significant amount on your total tax outgo.

Deductions under Section 80EEA

When Budget 2019 was presented, the government introduced Section 80EEA. Under the section, the homebuyers who apply for a loan can claim an additional deduction to a maximum limit of Rs. 1,50,000 provided they meet certain conditions, including:

  • The stamp value of the property must not be more than Rs. 45 lakhs
  • The loan must be sanctioned between April 2019 and March 2020
  • As on the date of sanction, you must not own any other property
  • If you claim for deduction under Section 80EEA, you cannot claim for deduction under 80EE

Deduction on registration fees and stamp duty

The deduction on registration fees and stamp duty is covered under Section 80C, and it is within the overall limit of Rs. 1.5 lakhs. Also, you can claim the deduction only once in the year in which you incur the expense.

Deduction on a joint home loan

If you have applied for a joint home loan, both (or all) applicants can enjoy tax benefits individually. You can claim a maximum deduction of Rs. 2 lakhs on the interest paid under Section 24 and up to Rs. 1.5 lakhs on the principal amount under Section 80C. You can include any of the family members, including spouse, sibling or parents as a co-borrower.

So, if you have availed a home loan, make sure that you take advantage of the above tax benefits guaranteed by the IT Act and reduce your total tax outgo.

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