Income Tax Benefit on House Loan

Home buyers can avail of numerous benefits provided by the government to make the dream of owning their home come true. In order to encourage citizens for investing in property, the government offers various home loan tax benefits under Section 24(B) and Section 80C of the Income Tax Act.

Continue reading to know more about the tax benefits of home loan.

Different income tax benefits on home loan

A home loan borrowers  is eligible for the following tax benefits listed below:

SectionNature of Tax DeductionMaximum Deduction (INR)
Section 80CTax Deduction on Principal RepaymentUp to Rs. 1,50,000
Section 24BTax Deduction on Interest PaidUp to Rs. 2,00,000
  • Interest deduction on principal repayment

The two components of EMI that the borrower pays are the principal amount and the interest amount. Under Section 80C of the Income Tax Act of 1961, for a self-occupied property, one can deduct the amount on account of the principal repayment.

However, if the second house is rented out, it is still considered a let-out property. Thus, the borrower will be still eligible for the home loan tax benefit. Whereas, the interest deduction under Section 80C can be claimed only once and in the same year in which they have incurred. Also, these tax deductions on home loan can be claimed for under-construction property.

In case, the home loan borrower has a second house, it is also considered as self-occupied property irrespective of the fact whether it is empty or someone lives. So, for both houses that are purchased with home loans, the borrower will be able to claim a deduction of up to 1.5 lakhs on the principal amount.

  • Deduction on interest payment

The tax deduction also includes the interest paid on a home loan. Under Section 24B of the Income Tax Act, for a self-occupied home, one is eligible for a tax benefit of up to Rs. 2 lakhs.

If the borrower has a second home, then the total tax exemption on home loan for two homes should not exceed 2 lakhs in a fiscal year. However, there is no maximum limit for claiming interest if it is a rented property.

  • Deduction under Section 80EE

This home loan tax benefit is only applicable to those borrowers who had taken out a home loan in India under the PMAY CLSS scheme.

If the home loan borrower meets the following criteria, then as per Section 80EE, they will be eligible for a deduction of Rs. 50,000 along with an additional deduction of Rs. 2 lakhs.

  • The property that is mortgaged against the loan should be worth Rs. 50 lakhs
  • The tax deduction benefit is only applicable to first-time home buyers and to the residential property
  • The principal loan amount should not exceed Rs. 35 lakhs
  • The home loan must be sanctioned between April 1, 2016, and March 31st, 2017.

According to the updated Income Tax Rule that comes into action in April 2022, no new housing loan borrowers are eligible for claiming the income tax benefit on home loan, as the tax benefit period has lapsed. One can even avail the tax benefits on a joint home loan.

Way to calculate the home loan tax benefit

If the borrower wants to calculate their home loan tax benefits before availing of the loan, they can simply do it by using an income tax calculator. For that, the following information is required:

  • Principal loan amount
  • Interest rate
  • Loan tenor
  • Gross annual income
  • Commencement date
  • Existing deduction under 80C/D

Many reputed financial institutions offer pre-approved offers on different loan products like home loans, loans against property, etc. This streamlines the loan procedure. Borrowers can check their pre-approved offers from the lender’s site by providing the required credentials.

Thus, borrowers should know about the home loan tax benefit for maximising their tax savings on loans and lessening their financial load.

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