If you’re an aspiring homeowner, understanding the significant Tax Benefits on Home Loans is paramount. In the upcoming paragraphs, we promise to demystify the intricate web of tax regulations, revealing how you can potentially save big. Don’t let valuable deductions slip through your fingers—dive into the comprehensive insights awaiting you in this blog.
Things we covered for you
Tax benefit for FY 2023-24
Here are some of the updates on the income tax rebate on housing loan for the financial year 2023-24.
|Type of Tax Break||Governing Tax Code||Maximum Benefit (in INR)||Eligibility Criteria|
|Capital Repayment||Section 80C||Up to ₹1.5 Lakh||Ownership of the home must be retained for a minimum of 5 years post-acquisition.|
|Loan Interest||Section 24b||Up to ₹2 Lakh||The borrowed sum should be used for either purchasing or constructing a residential property, which must be finished within 5 years from the close of the fiscal year the loan was secured.|
|Special Interest Deduction||Section 80EE||Up to ₹50,000||The loan amount must not exceed ₹35 lakh and the property’s valuation must be under ₹50 lakh. The loan should have been initiated between 1 April 2016 and 31 March 2017.|
|Stamp Duty & Registration Charges||Section 80C||Up to ₹1.5 Lakh||This relief is available only during the year you bear these costs.|
|Additional Interest Benefit||Section 80EEA||Up to ₹1.5 Lakh||The property’s market value should not surpass ₹45 lakh. You must not be claiming any deductions under Section 80EE. The loan must be contracted between 1 April 2019 and 31 March 2022.|
New Updates (Union Budget 2023-2024)
Here are some highlights from Union Finance Minister Nirmala Sitharaman’s most recent budget, which was announced on February 1, 2023:
Read: Plot Loans vs Home Loans: A Comprehensive Comparison
- The deadline to claim an extra housing loan interest deduction for the interest paid on a loan taken to buy an affordable home has been extended until March 31, 2022.
- The deadline for claiming a tax break for affordable housing projects has been extended for another year. The new deadline has been set for March 31, 2022.
- To encourage the availability of affordable rental housing for migrant workers, a new tax exemption has been suggested for notified Affordable Rental Housing Projects.
- While there were no significant adjustments to the interest on home loan deduction, the allocation of Rs.48,000 crore to the Pradhan Mantri Awas Yojana was noteworthy (PMAY).
|Standard Deduction||30% deduction on net annual value (NAV) of the property||Section 24(a)||Applicable to all residential properties||Up to 30% of the NAV|
|Interest on Home Loan||Deduction on interest paid on a home loan||Section 24(b)||Self-occupied property: Maximum deduction of Rs. 2 lakh per year<br>Let out or deemed to be let out property: No upper limit on deduction||Up to Rs. 2 lakh for self-occupied property (no limit for let out property)|
|Pre-construction Interest||Deduction on interest paid during the pre-construction period||Section 24(b)||Construction must be completed within 5 years from the end of the financial year in which the loan was taken||Deduction available in 5 equal installments, starting from the year of property completion|
Deduction For Interest Paid On Housing Loan Under Section 24
To avail of a tax deduction, it’s essential to secure a home loan for either purchasing or constructing a residence. Should the loan be intended for house construction, completion within five years from the fiscal year-end is mandatory.
The interest paid on your annual home loan EMI qualifies for the deduction, capped at a maximum of Rs 2 lakh under Section 24 of the Income Tax Act.
Starting from the assessment year 2018-19, the highest deduction for interest paid on a self-occupied property is fixed at Rs 2 lakh.
For properties that are let out, there exists no ceiling on claiming tax exemption for interest payments. This implies you can seek a deduction for the entire interest amount on your home loan.
Should the construction extend beyond the designated period (5 years), the allowable interest deduction on the home loan is limited to Rs 30,000 for the financial year.
Yet, the overall loss incurred can be asserted under ‘Income from House Property’ against any other income category, albeit restricted to Rs 2 lakh. This deduction becomes applicable in the year when the house construction concludes.
Tax Rebate on a Home Loan that Can be Availed u/s 80C
- For self-occupied and also let out properties you are allowed to claim up to a maximum of 1.5 lakhs every year from a taxable income on principal repayment.
- You can claim rebate on home loan only once, and the stamp duty and registration charges may be included within it.
- It is important to remember that in order to claim the benefits under section 80C you first need to complete the construction of the property in question.
- You are not allowed to sell your house within the first five years after claiming this deduction.
- Note that if you sell your house within the first five years after claiming the deduction, it will be reversed in the year which you sell it and the amount will also be added to your income in the year of selling.
Tax Savings on Home Loans Can be Availed of u/s 80EE
- On your interest payments, a proposal has been made to increase the income tax benefits by rupees 1.5 Lakhs.
- Under section 80EE limit, tax deductions are capped at Rs. 3.5 lakhs.
- You can avail of these benefits over and above the existing exemption of Rs. 2 lakhs under section 24(b).
The property value needs to be less than Rs.45 lakhs.
Read: Bank of Maharashtra Home Loan Interest Rates – Updated in November 2023
To claim the home loan interest tax benefit under section 80EE, one must make sure that the following terms and conditions are met.
Read: PMAY Subsidy Calculator: Calculate Your PMAY Subsidy Instantly
- These home loan tax deduction on income tax can only be claimed on the first house that is purchased by the taxpayer.
- These deductions can only be claimed if the value of the house does not exceed rupees 50,00,000.
- The housing loan tax exemption is not going to be available to claim if the home loan taken exceeds Rs.35,00,000.
- This home loan tax exemption interest is available to claim on the interest portion of the home loan.
- The home loan must be sanctioned by a recognized financial institution like a bank or a housing finance company.
- The individual using this deduction, cannot own another house at the same time.
- This deduction can only be used if the home loan is being used for residential properties, not commercial properties.
|Type of Deduction||Maximum Deduction Amount||Section of Income Tax Act||Conditions for Claiming Deduction|
|Deduction on Interest Payment||Up to Rs. 2 lakh per year||Section 24(b)||Property must be self-occupied or vacant|
|Deduction on Principal Repayment||Up to Rs. 1.5 lakh per year||Section 80C||Applicable to both first and second property|
|Deduction on Rental Income||Actual expenses incurred||Section 24(a)||Deductible: municipal taxes, repairs, interest paid|
|Capital Gains Exemption||Reinvestment or specified bonds||Section 54||Property held for more than two years|
Joint Home Loan Interest Rebate in Income Tax
- If a home loan is taken by two people together, each of them is eligible to claim a deduction on the interest paid up to 2 lakh per person.
- Tax is deducted on the principal amount as well as for an amount of up to Rs 1.5 lakhs each under home loan principal deduction section.
- Each applicant for the home loan has to be a co-owner of the property in order to claim this deduction.
Tax benefit on a second home loan or for a second property
- According to the current provision, the tax benefits are applicable only on the payable interest but you can claim the entire paid interest amount.
- According to the recent proposal, the second “self-occupied” home can be claimed so that borrowers save more on tax.
Housing Loan Tax Benefits of Owning a Second Property
Owning a second property can come with several tax benefits, particularly related to home loans. Here are some key tax advantages to consider:
Read: Difference Between Home Loan and Loan Against Property: Which Loan Product is Right for You?
- Deduction on Interest Payment: If you have taken a home loan for your second property, you can claim owner-occupied home loan tax deductions on the interest paid under Section 24(b) of the Income Tax Act. The maximum deduction allowed is up to Rs. 2 lakh per year, regardless of the number of properties you own. However, it’s important to note that the property must be self-occupied or vacant for this benefit.
- Deduction on Principal Repayment: The principal component of your home loan EMI can be claimed as a deduction under Section 80C of the Income Tax Act, subject to a maximum limit of Rs. 1.5 lakh per year. This deduction applies to both your first and second property.
- Rental Income Tax Benefits: Ifyou decide to rent out your second property, you can claim deductions on various expenses related to the property. This includes deducting the municipal taxes paid, repairs and maintenance costs, and even the interest paid on the home loan taken for that property.
- Capital Gains Exemption: If you sell your second property after holding it for more than two years, you can claim exemptions under Section 54 of the Income Tax Act. The capital gains earned from the sale can be exempted if you reinvest the proceeds in another residential property or invest in specified bonds.
The Process of Claiming Tax Benefits on Home Loans
- Calculate the tax deduction that has to be claimed.
- Make sure the house is in your name or that you are a co-owner of the loan.
- Submit your home loan interest certificate to your boss in order to adjust the tax-deductible at the source.
- If you don’t want to submit your home loan interest certificate to your boss, you will need to file the tax return by yourself.
- If you are a self-employed individual, it is important to keep these documents ready or in a file, so as to avoid any issues later on.
Calculating Tax Benefits on your Home Loan
You’ve delved into the myriad of tax benefits on home loans, but how does it all come together in a real-world scenario? Let’s break it down with an example:
Consider that one recently purchased their dream home using a home loan. Here are the details of the home loan:
Loan Amount: ₹40,00,000
Interest Rate: 8.5% per annum
Loan Tenure: 20 years
Gross Annual Income: ₹10,00,000
Now, let’s calculate the home buyer tax credit.
Section 80C – Principal Repayment
Maximum Deduction: ₹1,50,000
80C deduction home loan is applicable as one is repaying the principal amount of the home loan. So, they can claim the maximum of ₹1,50,000 under Section 80C.
Section 24(b) – Interest on Home Loan
Maximum Deduction: ₹2,00,000
One is eligible for a deduction of up to ₹2,00,000 on the interest paid for their home loan. This is within the prescribed limit.
Additional Deduction under Section 80EEA
Maximum Deduction: ₹1,50,000
Since the property value is less than ₹45 lakh and the loan is within the specified timeframe, one can claim an additional ₹1,50,000 under Section 80EEA tax benefit.
Adding these up, the total tax benefits amounts to ₹4,00,000. This means one can potentially save this amount on their taxable income, leading to reduced tax liability.
These calculations provide a general idea, and individual circumstances may vary. It’s advisable to consult with a tax professional for precise calculations based on your specific situation.
Check Your Home Loan Eligibility
Top Indian Bank Home Loan Intrest Rates(November)
Ans. The owner of the property is eligible for the tax benefits on home loans, if it is a couple taking a home loan, they are both eligible, individually for the benefits. In the case of a joint loan, the people taking the home loan need to be co-owners in order to qualify for the benefits.
Ans. Taxpayers who are paying a housing loan can claim the tax deduction on interest payments of up to Rs 1,50,000 per annum under Section 80EEA.
Ans. You can easily calculate your tax benefits using an online calculator. In order to calculate your tax benefits, the details you will need are, the loan amount, tenure, interest rate, loan stare date, gross annual income and the existing deduction under section 80C/D
Ans. If a home loan is taken by two people together, each of them is eligible to claim a deduction on the interest paid up to 2 lakh per person. Tax is deducted on the principal amount as well as for an amount of up to Rs 1.5 lakhs each. Each applicant for the home loan has to be a co-owner of the property in order to claim this deduction.
Ans. ICICI Bank, Kotak Bank, Axis Bank, HDFC, SBI, Central Bank of India, HSBC, Bank of India are just some of the many trustworthy banks where you can get your home loan from. To know more about the best banks for home loans click here.
Ans: Income tax exemption on home loan can primarily be availed under various sections such as Section 80C for principal repayment, Section 24b for interest payment, and additional benefits under Sections 80EE and 80EEA. These exemptions are subject to specific conditions and limits, offering multiple avenues for reducing your tax liability.
Ans: The income tax rebate on housing loan refers to the various tax benefits that are available under different sections of the Income Tax Act in India. These benefits can significantly reduce your tax liability by allowing deductions on both principal repayment and loan interest.
Ans: You can avail various types of income tax exemption on housing loan under sections like 80C and 24b of the Income Tax Act. These exemptions can cover aspects ranging from the principal amount repaid to the interest on the loan, depending on specific conditions and eligibility criteria.
Ans: Various exemptions are available for home loans in India. Under Section 80C, individuals can claim up to ₹1.5 lakh for principal repayment, and under Section 24(b), a maximum of ₹2 lakh is deductible for interest payments. Additionally, Section 80EEA provides an extra benefit of up to ₹1.5 lakh on interest, subject to certain conditions. Other exemptions may apply, such as those related to stamp duty, registration charges, and pre-construction interest.
Exploring the benefits under the Income Tax Act 1961, Section 80EEA introduces an additional tax advantage for under-construction properties. Taxpayers can avail themselves of a yearly benefit of Rs. 1,50,000 on interest payments for home loans during each financial year, provided they have utilized the Rs. 1.5 Lakh limit prescribed under Section 80C.