Purchasing a home is one of the significant financial decisions one makes in their lifetime. To give it a push, the Indian government has come up with various home loan tax benefit options to encourage home seekers to invest in the home through a home loan. One of the most common home loan tax benefits generally availed by individuals is offered by Section 80 C, wherein up to Rs 1.5 lakh tax deduction is allowed on account of repayment of the principal component. And a home loan tax benefit of up to Rs 2 lakh can be availed on repayment of the interest component for the self-occupied property under Section 24b. Apart from this, there are other income tax benefits on home loans available to the home loan borrowers about which we will discuss below.
Besides this, note that the government has also come up with numerous schemes, such as Pradhan Mantri Jan Dhan Yojana, which strives at bringing down the problem of accessibility and affordability.
Have any idea about the income tax rebate on a home loan provided by the government? Here, we will look at numerous home loan tax benefits that one can claim against their home loan.
|Home loan tax benefit in FY 2021-22|
|IT Section||Home loan tax deduction nature||The maximum tax deduction amount|
|Section 80C||Principal (including the registration & stamp duty fee)||1.50 lakh|
|Section 24 (b)||Interest||Rs 2 lakh|
|Section 80EE||In addition, interest for first-time buyers||Rs 50,000|
Indian government provides home loan tax benefits under the IT Act of 1961. Home loan borrowers can avail the benefits of the tax deduction on interest under Section 24 (b), tax deduction on principal under Section 80C and additional home loan tax benefit for first time home applicants as per Section 80EE.
Such tax saving on home loans assists borrowers in saving a sizable component per year. Moreover, the Finance Minister - Nirmala Sitharaman, on 1st February 2021, in the Union Budget, extended additional tax deduction on interest paid of up to Rs 1.50 lakh for buying affordable homes by a year more. Thus, the home loan borrowers can avail of deduction on interest paid of up to Rs 3.50 lakh for a year more until 31st March 2022. Remember that such tax deductions are available as per Section 80EEA, which offers home loan tax benefits of up to 1.50 lakh on the interest component serviced through home loans. Such benefits on a home loan are available over and above the present exemption of Rs 2 lakh as per Section 24 b.
However, note that such deductions can just be claimed to buy houses available at a value of up to Rs 45 lakh. Homebuyers can claim such benefits on home loans if availed till 31st March 2022.
Section 80 C of the IT Act offers a home loan tax benefit linked to principal amount repayment. As per the section, the amount serviced as repayment of principal amount through home loan is permitted as a deduction for up to Rs 1.50 lakh.
Crucial terms for a tax deduction on home loan principal repayment based on Section 80C:
|Particulars||Section 80C of the IT Act|
|Tax deduction permitted for||Principal|
|Kind of property||Just residential house property|
|Tax deduction basis||Paid basis|
|Tax deduction allowed||Rs 1.50 lakh|
|Loan purpose||Construction of new property/purchase|
|Eligibility to claim a tax deduction||Nil|
|Restriction on the property sale||Deduction claimed can be reversed if the property is sold off within 5 years.|
According to the Section 24 b of the Income Tax Act, 1961, one can avail of home loan tax benefit on home loan interest amount. As per the Section, one can claim up to Rs 2 lakh tax deduction on the interest paid for a home loan for a self-occupied property. However, zero maximum limit applies in the situation of the property, which may not be self-occupied, is deemed or rented. A taxpayer can get a deduction of the entire amount paid as per Section 24. However, if the property owner owing to employment or occupation reason does not occupy the home and is living in another place, the maximum tax deduction permitted will be Rs 2 lakh. Property must be constructed or bought within a span of 5 years from the end of the financial year when the loan was drawn.
|Particulars||Section 24 b of IT Act|
|Tax deduction permitted for||Interest|
|Property type||Any kind of real estate property|
|Tax deduction basis||Accrual basis|
|The amount allowed for a tax deduction||Self-occupied property: Rs 2 lakh|
|Loan purpose||Construction/purchase/renewal/repair/reconstruction of residential home property|
|Eligibility to claim tax deductions||Construction must be completed with a span of 5 years/Purchase.|
Just the first time, home loan owners can claim home loan tax benefits as per Section 80EE. According to the section provision, an additional Rs 50,000 deduction may be permitted to those making payment of interest on their home loan. This specific incentive can be separate & in excess of Rs 2 lakh deduction permitted under Section 24 and deduction of Rs 1.5 lakh permitted as per Section 80 C.
|Tax deduction permitted on||Interest|
|Property type||Just residential home property|
|Tax deduction basis||On paid basis|
|Tax deduction amount permitted||Rs 1.50 lakh|
|Loan purpose||Construction of new home property/purchase|
|Eligibility to claim a tax deduction||Nil|
To make purchasing homes affordable, the government has extended the interest deduction permitted for the low-cost housing loan to 31st March 2022. According to this new section of 80EEA, one can claim up to Rs 1.50 lakh deduction on interest paid for a home loan.
One can claim this tax deduction on availing of their second home loan but just on interest paid on a home loan. Presently, individuals can claim a home loan tax benefit just for the 1 property, which is self-occupied and conduct tax repayments basis notional rent.
Submitting a home loan application jointly not just enhances one’s home loan eligibility. It even renders home loan tax benefits. Those individuals taking up home loans jointly are given a choice to take up avail tax benefit individually. It implies that if 2 individuals have submitted an application for a joint home loan, each of them can claim the home loan tax benefit of up to Rs 2 lakh and up to Rs 1.5 lakh on their home loan interest and principal, respectively. Thus, the combined home loan tax benefit that they may enjoy can sum up to Rs 7 lakh only if they meet the required prerequisites.
The procedure for claiming home loan tax benefits is very simple and easy.
A self-employed borrower requires not to submit such documents. They should keep them handy so that they can provide them right away in the case of any query in the future.
✅What is the home loan tax deduction in case of a joint loan?
If a home loan is taken jointly, each home loan borrower can enjoy home loan tax benefits from their taxable income individually. Note that one can claim up to Rs 1.5 lakh on their principal amount paid and up to Rs 2 lakh on their interest amount paid.
In case you take another home loan, home loan tax benefits are applicable on payable interest components. In this case, you can claim the whole interest amount that is paid as no cap is applied to it. Presently, individuals can claim just one property in the form of self-occupied and make the tax payments on another notional basis rent.
The procedure to claim the home loan tax benefit involves:
A self-employed person does not require to submit any of the above-mentioned documents. However, they should keep required documents handy in the case of any query, which may come up in future.
The maximum tax-deductible amount for a home loan is stated below as per IT Act 1961:
An individual who has bought a new home for self-occupation or to rent out can claim the tax exemption as per Section 24(b), 80C and 80EEA of the IT Act, 1961. Co-owners or co-borrowers of home loans can even claim home loan tax benefits.