Income Tax Benefit on Home Loan
Owning your own house or apartment in India is considered to be no less than owning a valuable asset. It is also a dream come true for many people. And thankfully, the Indian government also offers support in the form of tax-saving home loans to anyone who wishes to buy a home in the country. However, terms and conditions will be there, and once those are fulfilled, you can buy a house. The Indian government makes home loans eligible for tax deductions. This claim falls under section 80C. Therefore, when you apply for a home loan, rest assured that you will receive various tax benefits that can help you save money.
- Deduction for Interest Paid on Housing Loan
- Deduction for Interest Paid on Home Loan During Pre-Construction
- Deduction on Principal Amount Repayment
- Deduction for Stamp Duty and Registration Charges
- Deduction Under Section 80EE
- Deduction under Section 80EEA
- Deduction for Joint Home Loan
If you wish to buy a new house or construct one but you are running short of funds, then you can opt to take a house loan. However, you must make sure that after you take a house loan, your house should be constructed within 5 years from the end of the financial year in which you took the loan.
If you are paying monthly installments for your home loan, then you must be aware that each installment or EMI consists of two parts - interest payment and principal repayment. You can claim the interest amount from your EMI that you paid for the year as a deduction from your total income. Under section 24, you can claim a maximum of upto Rs. 2 lac. Also, you must note that from the Assessment year 2018-2019 onwards, the maximum deduction rate is set at Rs. 2 lac for the interest paid. This cap is applied for any self-occupied house property. There is no upper limit set for any let out property. You can claim the deduction from the year in which your house construction was completed.
You can also claim for pre-construction interest. But what does this refer to? Let us explain with an example. Now, let’s assume that you bought a property which is under-construction and you have not yet shifted or moved to this property. However, you are paying your monthly EMIs. As per the income tax law, the eligibility to claim interest begins only upon the completion of a construction or when you buy a fully constructed property. As you have not yet moved to your under-constructed house, does it mean that you cannot take advantage of the tax benefits on the interest? The answer is a ‘no’. The income tax law accepts claims for such an interest too.
This type of interest is known as the pre-construction interest. It is the interest that you pay from the time you borrow money till the time the construction is complete. You can claim such interest as tax deduction in five equal installments from the year during which the construction of your house is finally complete.
Under section 80C, you can claim the principal section of your EMI that you have paid for a year as a deduction. You can claim up to 1.5 lac. However, you must note that you can claim this deduction only if you do not sell your property within 5 years of acquiring it. If you do so, the deduction that you previously claimed will be added to your income in the year in which you have sold your property.
Under u/s 80C you can even claim a deduction up to a limit of Rs. 1.5 lac for stamp duty and registration charges. You can claim this deduction only in the year during which you incurred these expenses.
Under section 80EE, you can also claim an additional deduction of up to Rs. 50,000. However, your loan amount should be up to Rs. 35 lacs or less and the value of your property should not exceed beyond Rs. 50 lacs. Also, the sanction date for your loan amount must be between 1st April 2016 to 31st March 2017. You must not own any other house on the date of the sanctioning of your loan. Section 80EE which was previously available for 2 years from FY 2013-14 and FY 2014-15 only, has been reintroduced again from FY 2016-17.
If the stamp value of your property does not exceed Rs.45 lacs, then you can claim an additional deduction of up to Rs. 1,50,000 under Section 80EEA. Also, the date of the sanctioning of your home loan must fall between April 1st 2019 to March 31st 2020. You must also not own any other house on the date of the sanctioning of your loan. You can claim this deduction if you are not eligible to claim the deduction under Section 80EE.
If you take a joint loan, then each of you can claim a deduction interest rate of up to Rs. 2 lacs and a principal repayment u/s 80C of up to Rs.1.5 lacs in your income tax returns. Both of you must however own the property jointly. If you wish to get more tax benefits, then you can consider taking a home loan with a family member.
Tax Benefits on Home Loan (FY 2021-22)
To understand the tax benefits better, check the table and the explanation given below:
|Income Tax Act||Deductible Amount (maximum)|
|Section 24||Rs.2 lacs per annum|
|Section 80C||Rs.1.5 lacs per annum|
- Claim maximum deductions of Rs. 2 lacs on your interest amount
- If the construction of your house is not finished within the specified time frame (5 years), then you can claim a deduction of only up to Rs. 30,000
- You can claim a tax deduction of up to Rs. 1.5 lacs on the principal repayment from your taxable income.
- It can also be inclusive of stamp duty and registration charges. You can claim these charges only one time.
- If you are buying a property for the first time, you can claim an additional deduction of Rs.50,000 on the payable interest in every financial year.
- Your home loan amount should not exceed Rs.35 lacs.
- The value of your property should fall under Rs.50 lacs.
Union Budget 2021-2022 Updates
Union Finance Minister Nirmala Sitharaman shared the following updates from the latest budget on 1 February 2021:
- The eligibility period to claim an additional deduction for interest of Rs.1.5 lacs has been extended till March 31st 2022.
- You can claim tax holiday for affordable housing projects till March 31sst 2022.
- A new tax exemption has been proposed for Affordable Rental Housing Projects. This has been introduced to promote the supply of Affordable Rental Housing for the migrants.
Claim Tax Benefits on Home Loans
Check out the steps below to claim tax benefits on home loans:
- Start by calculating the tax deduction that you wish to claim.
- Make sure that the house is in your name. You can also be the co-owner.
- You must submit your home loan interest certificate to your employer. This step must be done to adjust the tax that is deductible at the source.
- If you wish to skip the above step, then you can do so. However, if you do so you will have to file your income tax return by yourself.
- If you are self-employed, you won’t have to submit any of the above.
Calculate Tax Benefits on Home Loans
By using an online calculator you can check your home loan tax benefits. The following are the details that you will require to proceed with the calculation:
- Loan Amount
- Interest Rate
- Loan Tenure
- Loan Start Date
- Gross Annual Income
- Existing Deduction Under 80C/D
Income Tax Benefit on Home Loan - FAQs
You can claim tax deductions only on the payable interest. You can claim the full interest amount as there is no fixed cap. Currently, you can claim only one property as self-occupied. Your other property will be considered as a let-out property. It will be taxed as applicable. Also, the notional rent will be included in your income for your second property.
If you sell your house within 5 years of acquiring it, then your claimed tax deductions will be reversed. However, exemptions on the interest paid won’t be affected.
According to the income tax laws, you cannot claim tax deductions until your house has been completely constructed. After the construction is completed, you can claim the interest that you paid for the period before you moved in. You can claim it in 5 equal installments from the year in which the construction of your house was completed.
Yes. The Union Budget 2021 government extended the date for additional tax deduction of Rs.1.5 lacs on interest paid for home loans till March 31st 2022.