Know Everything About Home Loan Income Tax Benefits

Home loans in India have always been appended with lucrative offers. Currently, some of the lenders are offering home loans at an interest rate as low as 6.75%. Apart from the low interest rates, the government has also been playing a significant role in enhancing the popularity of home loans as a credit instrument. To encourage people to opt for home loans for buying property, the government offers tax rebates. The home loan tax benefit is one of the means through which homebuyers can save extensively.

Property ownership comes with the added duty of paying taxes. The government takes an individual’s income from the property into account. Even if the property is self-occupied or lying vacant, it is deemed that it is contributing to the owner’s income. When you acquire a home loan, the process of owning a house gets fast-tracked. By paying regular EMIs to the lender, you get to own the property while enjoying tax deductions. This very feature of home loan tax benefit acts as an incentive for homebuyers to take this route. In the Union Budget 2021, the government extended the period of the additional tax deduction on the home loan interest rate by one year. Homebuyers can save an extra 1.5 lakh INR till the end of March 2022. Thus, no stone has been left unturned to render home loans a popular credit tool. You can understand the mechanism of the home loan tax benefit by following this comprehensive guide.

Home loan tax benefit: Scope and source

The source for home loan tax benefit is the Income Tax Act, 1961. It is available on both the principal amount and the interest. Both these components have separate sections dedicated under the Act. 

Tax benefit on home loan principalTax benefit on home loan interest
Falls under Section 80C of the income tax lawFalls under Section 24, Section 80EE, Section 80EEA
The maximum amount of tax deduction offered is 1.50 lakh INR per yearThe maximum amount of tax deduction offered is 3.50 lakh INR per year
For senior citizens, the upper limit is 2 lakh INR per year.For senior citizens, the upper limit is 4.50 lakh INR.

 

Home loan tax benefit on principal under Section 80C

Tax deduction on the home loan principal amount is available for both property construction and property purchase. It can be claimed on self-occupied, rented or assumed to be rented properties. Under this section, taxpayers can claim a maximum amount of 1.50 lakh INR. For senior citizens, the amount increases to 2 lakh INR. It is a separate provision and shouldn’t be clubbed with other deductions under Section 80C. To claim this facility, the homebuyer must fulfil the following criteria: 

  • If the home loan has been availed for house construction, it should be accomplished within five years
  • The house should not be sold within five years of ownership
  • You can only claim tax benefit on the actual amount you’re repaying every year

Home loan tax benefit on interest under Section 24

This benefit is available on the home loan interest rate for both property construction and purchase. Similar to the deduction on principal, the property can be self-occupied, rented or assumed to be rented. The rebate can be claimed even if no actual payment is made. The guidelines under this section vary for self-occupied and rented properties. For the self-occupants, the upper limit has been set at 2 lakh INR. For the latter, the entire interest amount gets waived off in the form of deduction. The requirements to avail the benefits under this section include:

  • If the home loan has been acquired for construction, it should materialise within five years. Otherwise, you cannot avail of more than 30,000 INR as a deduction
  • You should have a certificate from the lending institution depicting the interest calculation

Home loan tax benefit under Section 80EE

This provision offers a tax rebate over deductions under Section 80C and Section 24. The upper limit on the rebate has been fixed at 50,000 INR. To claim this part of the tax benefit, you should cater to these terms and conditions:

  • You should be a first-time buyer
  • The value of the property should not exceed 50 lakh INR. The loan amount should not surpass 35 lakh INR
  • You can claim this facility only after exhausting the benefit available under Section 24

Home loan tax benefit under Section 80EEA

This facility is also available over tax benefits under Section 80C and Section 24. Its upper limit is 1.50 lakh INR per year. To claim deductions under Section 80EEA, you should:

  • Be a first-time buyer
  • Should not have claimed benefit under Section 80EE
  • Should have acquired the loan from a registered financial institution
  • Should not have purchased a property whose value surpasses 45 lakh INR

Thus, under various sections of the Income Tax Act, you can benefit from tax deductions. These can be availed on both the principal amount and interest. Home loan tax benefit can be claimed separately by co-owners as well.

Apply for a home loan today to avail of interest rates starting from just 6.75%. You can acquire the loan just by fulfilling certain eligibility criteria with minimal documentation. With features such as home loan balance transfer and top-up amount, several financial institutions such as Bajaj Housing Finance extend lucrative loans, making it convenient to own a house.

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