Tax benefits on home loan are a significant incentive provided by Government to encourage home ownership and investment in real estate. These benefits allow individuals to save money by reducing their tax liability.
The Indian government provides a way to fulfil this dream by encouraging citizens to invest in a house property. It offers various benefits on the repayment of a Home Loan through tax deductions under the Income Tax Act 1961. Here is understanding these benefits better:
What are the Repayment Components of a Home Loan
In a Home Loan, you are paying the Equated Monthly Instalment (EMI) for two primary components of the loan:
- The principal amount
- Interest payment
Summary of income tax benefits on Home Loan
| section | Component of a Home Loan | Maximum Rebate |
| Section 80(C) | Deduction on Principal Repayment | Rs 1.5 Lakh |
| Section 24(b) | Deduction on the interest amount | Rs 2 Lakh |
| Section 80EE | For first time buyer | Rs 50,000 |
Deduction on principal repayment under Section 80C
Section 80C allows a deduction for the principal paid on the house loan EMI for the year. The total sum that can be claimed is Rs 1.5 lakh.
However, in order to claim this deduction, the house must not be sold within five years of possession. Otherwise, the previous deduction will be added back to your income in the year of sale.
Deduction for interest paid on housing loan under Section 24
As per section 24(b) of Income Tax Act
You can claim a tax deduction of up to Rs. 2 lakhs on house loan interest paid. This deduction applies to both self-occupied and unoccupied residential homes.
- There is no cap on tax deductions for let-out or rented residential properties.
- This deduction applies to:
- Home loans taken on or after April 1, 1999
- Properties acquired or constructed within 5 years of the end of the fiscal year in which the housing loan was obtained.
- The deduction for interest on borrowed capital is restricted to Rs. 30,000 only if the following conditions are met:
- A home loan is obtained before April 1, 1999, to purchase or construct a house.
- The home loan is taken on or after 01-04-1999 for a home’s reconstruction, repair, or renewal.
- The home loan is taken on or after 01-04-1999 but construction of house property is not completed within five years..
Additional Deduction under Section 80EE
Section 80EE was introduced in the financial year 2013-14. It was available for only two years, FY 2013-14 and FY 2014-15. The deduction allowed earlier was limited to a maximum of Rs 1 lakh in total and was available for only two financial years.
however, this section has been reintroduced to give a boost to the affordable housing segment, with an aim to make home ownership more lucrative for first-time home buyers.
Additional deduction under section 80EE is allowed to the home buyers for a maximum of up to Rs 50,000
To claim this deduction, the following conditions should be met:
- The stamp duty value of residential house property should not be more than Rs. 45 lakhs
- You should not own any residential house property on the date of sanction of loan.
Deduction for a joint home loan
Under this, the both partners can jointly claim deductions worth Rs 3 Lakh on the principal amount under Section 80C. Moreover, the total tax deduction on the interest repayment under Section 24 of your Home Loan goes up to Rs 4 Lakh from Rs 2 Lakh.
To claim this deduction, they should also be co-owners of the property taken on loan. So, a loan taken jointly with your family can help you claim a larger tax benefit.
