Home loan tax benefits

You can get tax benefit on home loans under Section 24, 80C, and 80EE/ 80EEA only if you choose the old tax regime. The new tax regime (Budget 2023) does not include these provisions.

These home loan tax exemptions can only be claimed to purchase houses with a stamped value of up to Rs. 45 lakh. Thus, borrowers will be able to claim a maximum income tax deduction of Rs. 3.5 lakh.

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

As per the new income tax rule, starting April 2023, no new home loans sanctioned in FY23-24 will be eligible to claim the tax benefits under section 80 EEA.

Sections of the Income Tax Act for tax rebate on home loan

Here are some key sections of the Income Tax Act in India that provide tax benefits on home loans:

Home loan tax benefits under Section 80C & Section 24

The Government of India extends these benefits as a form of relief to borrowers, making home purchase more affordable. On availing a home loan, you need to make monthly repayment in the form of EMIs, which include two primary components – the principal amount and interest payable. The IT Act enables borrowers to enjoy tax benefits on both these components individually.

1. Section 80C

These are the deductions under 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 deduction on stamp duty and registration charges but can be claimed only once and in the same year that they are incurred. Section 80C of the Income Tax Act in India provides deductions for certain specified investments and expenditures

2. Section 24

Under Section 24 of the Income Tax Act, there are two types of deductions available for home loan interest:

1. Deduction up to Rs. 2 lakh: Taxpayers can enjoy a maximum deduction of up to Rs. 2 lakh on the interest amount payable for a home loan. This deduction is applicable for properties whose construction is completed within five years.
2. Limited deduction if construction not completed in 5 years: If the construction of the property is not finished within the specified five-year period, the maximum deduction reduces to Rs. 30,000 instead of Rs. 2 lakh.

Home Loan Interest Deduction

Section 80EE allows income tax benefits on the interest portion of the residential house property loan availed from any financial institution. You can claim a home loan interest deduction of up to Rs. 50,000 per financial year as per this section. You can continue to claim until you have fully repaid the loan. The deduction under 80EE is applicable only to individuals, which means that if you are a HUF, AOP, a company, or any other kind of taxpayer, you cannot claim the benefit under this section. To claim this deduction, you should not own any other house property on the date of the sanction of a loan. Use the home loan EMI calculator to estimate your home loan EMIs.

Interest rate deductions on home loan for pre-construction phase

You can avail of interest rate deductions on your home loan during the pre-construction phase. This period is marked by the time when the property is being constructed or built, and you can claim deductions on the interest paid towards the loan. The deduction is allowed in five equal instalments starting from the year in which the construction of the property is completed. The maximum deduction allowed is up to Rs. 2 lakh, and you must ensure that you provide all mandatory documents like the possession letter and construction completion certificate to claim the deduction. The deduction can provide significant relief during the pre-construction phase and help you manage your finances better while your property is being constructed.

Tax Deductions on the Principal Amount of Housing Loan

Tax deductions are available on the principal amount of a home loan under certain conditions. These deductions can be claimed under Section 80C of the Income Tax Act, 1961.

Here are some key points to consider:

Maximum deduction: The maximum deduction allowed under Section 80C for the principal repayment of a home loan is capped at Rs. 1.5 lakh per financial year. This deduction is part of the overall limit of Rs. 1.5 lakh that includes other eligible investments and expenses.

Conditions for claiming deduction: To claim the deduction, the property should be in your name, and the construction should be completed. If you have taken a loan for renovation or repair work, the deduction can be claimed after completion of the renovation or repair.

Tax benefit on joint home loan: In case of a joint home loan with a co-applicant, each co-applicant is eligible for a separate deduction, provided they are also co-owners of the property.

Pre-construction period: For properties under construction, the principal repayment cannot be claimed as a deduction until the construction is completed. However, during the construction period, you can claim the interest paid as a deduction in five equal installments starting from the year of completion.

Home loan certificate: The lending institution provides a home loan certificate that states the principal and interest components of the repayment. This certificate is essential for claiming the deduction while filing your income tax return.

It is crucial to keep in mind that tax laws are subject to change, so it is advisable to consult a tax professional or refer to the latest tax regulations for accurate and up-to-date information regarding tax deductions on the principal amount of a home loan in India.

Tax Deduction for First-Time Buyers

First-time home buyers who opt for a home loan can avail of certain tax deductions to reduce their tax liability. Here are some important points to consider:

Section 80EEA: Under Section 80EEA of the Income Tax Act, 1961, first-time home buyers can claim an additional deduction of up to Rs. 1.5 lakh on the interest paid on home loans. This deduction is available over and above the existing deductions allowed under Section 24(b) for home loan interest.

Eligibility criteria: To be eligible for this deduction, the following conditions must be met:

• The home loan must be taken from a financial institution between specific dates, as notified by the government
• The stamp duty value of the property should not exceed Rs. 45 lakh
• The buyer should not own any other residential property on the date of sanctioning the loan

Maximum deduction limit: The deduction under Section 80EEA is capped at Rs. 1.5 lakh per financial year and can be claimed until the repayment of the loan is completed or for a maximum of 7 years, whichever is earlier.

Joint ownership: In the case of joint ownership of the property, each co-owner who is a first-time home buyer can claim this deduction, provided they fulfill the eligibility criteria individually.

Documentation: It is essential to maintain all the necessary documents, such as loan sanction letter, loan repayment statements, and other supporting documents, to substantiate the claim while filing income tax returns.

Tax planning: It is advisable to consult a tax professional to understand the specific tax implications and benefits based on your individual circumstances and financial goals.

Remember to keep track of any changes in tax laws and consult a tax advisor to ensure accurate and up-to-date information regarding tax deductions for first-time home buyers in India who opt for a home loan.

Home loan tax benefits under Section 80EE and Section 80EEA

Both Section 80EE and Section 80EEA of the Income Tax Act provide additional tax benefits on home loan interest, specifically for first-time homebuyers.

Section 80EE

• First-time homebuyer: To be eligible for the deduction under Section 80EE, the taxpayer must be a first-time homebuyer. It means the individual should not own any residential property on the date of the loan sanction.
• Maximum deduction: Under Section 80EE, first-time homebuyers can claim an additional deduction of up to Rs. 50,000 on the interest paid on a home loan during a financial year. This deduction is over and above the deduction available under Section 24.
• Property value and loan amount limit: The value of the property for which the loan is taken should not exceed Rs. 50 lakh. Additionally, the loan amount should not exceed Rs. 35 lakh.
• Sanction period: The home loan should be sanctioned between specific financial years, as notified by the government. As of my last update, this period was from April 1, 2016, to March 31, 2017.

Section 80EEA

• Affordable housing: Section 80EEA was introduced to provide additional tax benefits to individuals buying affordable housing properties.
• First-time homebuyer: Similar to Section 80EE, the taxpayer must be a first-time homebuyer to claim the deduction under Section 80EEA.
• Maximum deduction: Under Section 80EEA, first-time homebuyers can claim an additional deduction of up to Rs. 1.5 lakh on the interest paid on a home loan during a financial year. This deduction is over and above the deductions available under Section 24 and Section 80EE.
• Property value and loan amount limit: The value of the property for which the loan is taken should not exceed Rs. 45 lakh. Additionally, the loan amount should not exceed Rs. 25 lakh.

Some other conditions to note:

You may also note below pointers and avail benefit

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

Please note that tax laws and provisions may change over time due to budget announcements or amendments in tax regulations. Therefore, it is essential to verify the latest provisions and consult a tax professional to understand the most up-to-date tax benefits applicable to your specific circumstances.

Deduction for a joint housing Loan

If you have taken a joint home loan with a co-applicant, you can claim deductions on the interest paid towards the loan, subject to certain terms and conditions. The deduction is available for co-applicants who are joint owners of the property and co-borrowers of the loan. The maximum amount of deduction allowed is up to Rs. 2 lakhs per co-applicant, which means that both co-applicants can avail of the deduction. To claim the deduction, the co-applicants must provide the necessary documents such as the loan sanction letter, the loan agreement, and possession certificate. Claiming the deduction for a joint housing loan can provide significant tax benefits and help you manage your finances when purchasing a property.