Know the Latest Change in Income Tax Deduction on Home Loans

Updated on: 18 Jan 2024 // 3 min read // Home Loans
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A Home Loan is a major financial decision and a step in the direction of your dream abode. In the wake of Housing for all by 2022, the Government of India has been continuously supporting taxpayers by offering multiple tax rebates and Benefits of Home Loan to borrowers in each budget.

Whether you have applied for a Housing Loan for the first time or planning another Home Loan, you can radically minimize your tax outgo in the assessment year 2020-21.

Let’s find out below what all benefits are available to the taxpayers on a Home Loan? If you haven’t applied for a Housing Loan yet, you can use the given information for planning your taxation for FY 2019-2020.

Basics of Home Loan, Home Loan EMI, and Tax Benefits

A Home Loan is a credit extended by a bank or a financial institution to purchase and/or construct a residential property such as an apartment or individual house. The loan can be applied for an inherited house, or a new home for self-use or to rent out. 

Whether you are living in a metro city or a remote area, you can avail a Home Loan for the amount up to 70 to 90 percent of property value at an interest rate ranging from 8.5% to 11 % p.a. for a long tenure ranging from 10 to 30 years. You can avail loan at a fixed or flexible interest. The eligibility for a Home Loan primarily depends on your monthly income and credit history.

Every month you are required to repay your loan in Equated Monthly Instalments (EMI). Your Loan EMI consists of the principal as well as interest component, i.e., you pay every month a part of the Principal amount and a part of Interest due. A woman applicant can avail a concessional rate of interest and thus have lower EMIs.

You can thus avail a separate tax rebate on both the principal amount and interest amount. However, to avail the tax benefits, the construction of the property must be completed in 5 years.

Change in Tax Benefits on Home Loan Principal

Under Section 80C of the Income Tax Act, 1961, you can you can avail a deduction up to Rs. 1.5 lakh on taxable income for the payment of principal loan amount. The benefit is available only for self-use and let-out properties, where construction is completed in five years of availing the loan. If you decide to sell out the residential property within five years of buying it, the tax benefit is reversible.

You can also claim tax benefit for registration and stamp duty on the purchase of a home. The benefit is available only for the year when the expenses are incurred.

Tax benefit on Home Loan Interest Prepayment

Under Section 24B, you can claim a tax deduction up to Rs 2 Lakh on the interest paid on your Home Loan in a year. For, rent out properties, there is no upper limit on the tax exemption. The construction of property must be completed in five years to claim the maximum benefit, or you can avail a maximum of Rs 30000 for five years. 

Tax benefits for first time home buyers

In the Union budget 2018, additional tax deduction of Rs. 50,000 per financial year was introduced. The tax rebate is exclusive of Section 80C and Section 24 benefits. The exemption is available for small ticket size Home Loans up to Rs. 35 Lakh for properties up to Rs. 50 Lakh.

Tax benefits for Joint Owners and Co-Borrowers

All joint owners and co-borrowers can claim separate tax benefits to the full limit available under Section 80 C and Section 24B. So you can considerably save tax by applying for a loan with your spouse.

Separate Tax Benefits for HRS and Home Loan

Home Loan applicants living in a rental property can make separate claims for House Rent Allowance (HRA) and Home Loan.

Also Read: 5 Best Home Loan Providers in India