Income Tax Benefit on Home Loan

Owning a house is a dream come true for most people. The government of India offers various tax saving schemes to people who have availed home loans. This article will talk about home loan tax benefits in detail.

Components of a Home Loan

When you start paying the EMIs of your home loan, it consists of a principal amount and an interest amount. At the end of a year, banks often give an interest certificate which clearly mentions these two components, and how much money was paid under each category. 

The housing loan tax benefit by the government can be availed on both these components separately. 

Let us look at the various types of deductions, and the terms and conditions to avail income tax benefit on home loan.

Home Loan Tax Benefit on Interest Component

You can claim an income tax deduction on the interest paid for your home loan under the sections 24B, 80EE, and 80EEA. 

Some terms common to all sections is that the property or land  must be new, and the construction on a property must end within 5 years of taking the loan.

Other terms are mentioned in detail below - 

Section 24B

This is applicable for loans that were sanctioned between 1st April, 2022 to 31st March, 2023. 

Under this section, you are allowed to claim deductions up to Rs.2 Lakh. In case your interest is less than Rs.2 Lakh, you can claim the full amount.

This can be claimed for properties that you have occupied as well as properties you have rented out only if you follow the old tax regime. Under the new tax regime, only properties that have been rented out can claim deductions under this section.

Section 80EE

This is applicable for loans that were sanctioned between 1st April, 2016 to 31st March, 2017. 

The maximum claim applicable under this section is Rs.50,000. To claim this, your loan amount should be under Rs.35 Lakh, and the total valuation of the property should be under Rs.50 Lakh. The taxpayer should be a first time home buyer and must follow the old tax regime.

80EEA

This is applicable for loans that were sanctioned between April, 2019 to March, 2022. 

The maximum amount that can be claimed is Rs.1.5 Lakh, but the stamp value of the property should be under Rs.45 Lakh. The taxpayer should be a first time home buyer and must follow the old tax regime.

Housing Loan Tax Exemption for Property Renovation

If you were searching for ‘interest on home loan deduction’, but have not purchased a new house, don’t worry. Even if you have applied for a loan to renovate your house, you can avail a tax exemption. 

Under Section 24, you can claim a deduction of up to Rs.30,000 if your loan was sanctioned between 1st April, 2022 to 31st March, 2023. 

Home Loan Tax Benefit on Principal Component 

Just like you can claim deductions on the interest paid, there are certain benefits to be claimed on the principal component as well. 

Section 80C has a maximum deduction of up to Rs.1.5 Lakh. Please note that this section also includes your PPF, insurance, childcare, etc. 

Income Tax Benefit on Home Loan - Stamp Duty & Registration Fees

Section 80C can also include the amount spent on stamp duty and the registration fees for a new property. 
Please note that the maximum amount that can be claimed under this section is Rs.1.5 Lakh, and includes the home loan’s principal amount, stamp duty, and registration fees.

Housing Loan Tax Exemption in Joint Home Loan

There are many benefits that can be availed in case you co-own a house with your family member. 

The person must be a co-applicant in the loan and not a guarantor. In such a case, all housing loan interest deductions will be applicable to each applicant. 

For example, if you apply for a loan with your spouse, both you and your spouse can claim Rs.2 Lakh (each) as interest deduction. What this means is, if your interest component is under Rs.2 Lakh, you can equally divide the claim by 50%. But if the claim is Rs.4 Lakh, you can both claim Rs.2 Lakh. 

Housing Loan Tax Benefit for Pre-construction Property

Home loans are often taken for properties that are still under construction. You can claim tax benefits for loans taken on pre-construction property, where you still haven’t received possession.

The condition is that you have to wait for the construction to be completed in order to claim the deductions, and the construction should be completed within 5 years. You can avail tax benefit in 5 equal installments over 5 years, post construction.

In case you are living in a rented apartment during this time, you can also claim deductions under the HRA component. 

Interest on Housing Loan Deduction for AY 2022-23

All the above deductions are valid as long as you fulfill the terms and conditions. So, the total  deductions you can avail on the interest paid for your home loan can go up to Rs.3.5 Lakh. 

This is applicable if you were a first time home buyer between April 1, 2019, and March 31, 2020. The deductions can be claimed under Section 24 and Section 80EEA.

The only change that has been made in the new budget is related to the sale of a property. You have to pay capital gains tax when you sell a residential property. 

Previously, tax was charged on the difference between the sale price and what you paid to acquire the house, which includes the interest paid on the home loan. 

In the new budget, while computing the cost of acquisition, you have to exclude the amount you claimed as tax deduction on the interest paid every month.