Home Loan tax Benefits
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Income Tax Benefit on Home Loan

The 2020 Union Budget came up with the proposal to increase the income tax benefits by Rs. 1.5 Lakh on interest payments of home loans. Thus, borrowers can now avail deduction of up to Rs. 3.5 Lakh.

This deduction is available under Section 80EEA which provides income tax benefits of up to Rs. 1.5 Lakh on the home loan interests paid. These home loan tax benefits are available over and above the existing exemption of Rs. 2 Lakh under Section 24(b).

These home loan tax exemptions can only be claimed to purchase houses with a stamped value of up to Rs. 45 Lakh. Homeowners can claim the benefits on loans availed till 31st March 2021. Thus, borrowers will be able to claim a maximum income tax deduction of Rs. 7 Lakh.

Income tax benefits under Section 80EEA are available to those availing home loans under the PMAY CLSS scheme.

Sections of the Income Tax Act that provide tax rebate on home loan:

Sections in the IT Act
Nature of home loan deduction in income tax
Maximum amount deductible
Section 80C Tax deductions on the principal repayment Rs. 1.5 Lakh
Section 24 Tax deductions on the interest amount payable Rs. 2 Lakh
Section 80EE Additional home loan interest tax benefit for first-time home buyers Rs. 50,000

The Government of India extends these benefits as a form of relief to borrowers, making it more affordable.

Elaborating the Home Loan Tax Sections in Details:

On availing a home loan, you need to make monthly repayments as EMIs, which include two primary components – principal amount and interest payable. The IT Act enables borrowers to enjoy tax benefits on both these components individually.

1. Section 80C

  • Claim a maximum home loan tax deduction of up to Rs. 1.5 Lakh from your taxable income on the principal repayment.
  • This may include stamp duty and registration charges as well but can be claimed only once.

2. Section 24

  • Enjoy maximum deductions of up to Rs. 2 Lakh on the interest amount payable.
  • These deductions apply only on the property whose construction is finished within 5 years. If it doesn’t finish within this time frame, you can claim only up to Rs. 30,000.

3. Section 80EE

  • First-time home buyers can claim an additional Rs. 50,000 on the payable interest every financial year.
  • The Home Loan amount must not be more than Rs. 35 Lakh.
  • The property’s value must be within Rs. 50 Lakh.

Some Other Conditions to Note:

  1. The tax exemption is applicable only when construction of the property is complete, or you purchase a ready-to-move-in house.
  2. Enjoy these tax benefits every year and save significant amounts.
  3. If you sell off the property within 5 years of its possession, the claimed benefits shall get reversed and added to your income.
  4. You may purchase the property and let it out on rent. In that case, no maximum amount is applicable to claim as home loan tax exemption.
  5. When availing the home loan, if you continue to rent another house where is presently reside, you can claim tax benefits against HRA as well.

What are the Tax Deductions on a Joint Home Loan?

In case of a home loan jointly, every borrower can enjoy tax benefits on joint home loan from his/her taxable income individually. One can claim a maximum of Rs. 2 Lakh on the interest paid and up to Rs. 1.5 Lakh on the principal amount. Any family member, friend or even the spouse can be a co-borrower of a Joint Home Loan from Bajaj Finserv.
The only condition is that every applicant of the housing loan must be a co-owner of that residential property.

Is There Home Loan Tax Benefit on a Second House?

If you take a second home loan to purchase another property, tax benefits are applicable on the payable interests. Here, you can claim the entire interest amount paid as no cap is applied here.
Currently, individuals can claim only one property as self-occupied and make tax payments on the other based on notional rent. According to the latest Union Budget of India, a proposal has been put forward stating that an individual can claim a second home as self-occupied property. This aims to help borrowers save more in the form of taxes.

How to Claim Tax Benefit on Home Loan?

The process to claim tax benefits on a home loan is easy and simple.

  1. Make sure the residential property is in your name. In case of a joint home loan, ensure to be the house’s co-owner.
  2. Calculate the total amount you can claim as a tax deduction.
  3. Hand over your employer the home loan interest certificate so that he can adjust the TDS.
  4. On failing to follow this step, you need to file your IT returns.

Self-employed borrowers need not submit these documents. They must keep these handy to provide if a query arises in the future.

How does a home loan help for income tax?

Home loan repayment is eligible for tax deductions under the Income Tax Act 1961. Home loan interest paid up to Rs.2 lakh per year is tax deductible u/s 24. Section 80C allows deduction against principal repayment of up to Rs.1.5 lakh every year. Additional deductions are available u/s 80EE and 80EEA.

What is the maximum amount of tax deductible for a home loan?

The maximum tax deductible for a home loan is listed below under specified sections of the Income Tax Act 1961.

  • Up to Rs.2 lakh u/s 24 for self-occupied house; no limit for non-self-occupied house.
  • Up to Rs.1.5 lakh u/s 80C.
  • Up to Rs.1.5 lakh u/s 80EEA for first-time home buyers.

Who is eligible to claim tax exemptions on home loans?

A person who has purchased a new house for self-occupation or to rent out can claim tax exemption on home loans u/s 24, 80C and 80EEA of the Income Tax Act 1961. You can also claim tax benefits if you are a co-owner of the house or a co-borrower.

Can I claim home loan tax benefits on an under-construction property?

Yes, you can claim home loan tax benefits for a property under construction u/s 80C. The following rules apply for such deduction.

  • If the construction is completed within 5 years, a deduction of Rs.2 lakh is applicable.
  • For constructions not completed within 5 years, only up to Rs.30,000 is deductible.

Is home loan protection insurance tax deductible?

Premiums paid for a home loan protection insurance plan are tax deductible under section 80C of the Income Tax Act 1961 only if the borrower makes repayment. Under specific circumstances, where the lender finances such insurance plan and the borrower repays via loan EMIs, deductions are not allowed.

Is home loan top-up eligible for tax deduction?

A home loan top up is eligible for tax deduction u/s 24(b) and 80C only if it is used for –

  • Acquisition/construction of a residential property.
  • Renovation or repair of such property.

Such a claim should also be backed up with valid receipts and documents.

How Can You Calculate Tax Benefits on Home Loan?

Use the Bajaj Finserv’s Income Tax Calculator to compute the tax benefits without any hassle. It is an online tool which instantly calculates the amount based on certain home loan details. Some of those include home loan amount, rate of interest, existing tax deductions, gross annual salary, etc.
Simply enter the details required and check the tax benefits you can avail.
In India, purchasing a property is considered as a significant investment decision. Hence, approach Bajaj Finserv and avail the most competitive home loan interest rate along with other benefits to own your dream house.