Buying a house is an expensive endeavour that not many can accomplish on their savings alone. Therefore, most people apply for a home loan to fund their property purchase. A home loan or housing loan gives you the financial support you need to realise your home- buying dream. To motivate more individuals to invest in real estate, the Indian Government offers a housing loan tax benefit under certain sections of the Income Tax Act, 1961. Thanks to these tax rebates, you can make significant savings during your loan repayment tenure. This blog explores the different tax benefits offered on housing loans. Read on!

Understanding Home Loan and its Repayment

• A home loan is an approved amount that eligible individuals can borrow from banks or other lending institutions to buy a residential property. The borrower has to repay this loan amount with applicable interest in the form of EMIs (Equated Monthly Instalments) over a specified tenure. Therefore, home loan repayment involves paying the lender back the principal amount as well as the interest amount. The latter is calculated based on the interest rate fixed by the lender. According to the different IT (Income Tax) Act sections, the home loan tax benefit and deduction vary for the principal and interest components.

Housing Loan Tax Benefit Under Various Sections of the IT Act

1. Home loan tax benefit under Section 80C

   The Income Tax Act's Section 80C lets you claim a tax deduction of up to ₹1.5 lakhs on the principal amount repayment in a financial year. It is the maximum limit set for exemption. However, for this claim to be valid, you must not sell the house for a minimum of 5 years. In the event that you sell it within the five-year period, the tax deduction won't be applicable and will be included in your income for the said year. Under this section, you can claim a tax deduction on the property registration fees and stamp duty charges too.

2. Housing loan tax benefit under Section 80EE

   Section 80EE of the Income Tax Act offers a special provision for first-time homebuyers. If you fall under this category, you can claim a home loan tax benefit of up to ₹50,000 as a deductible on the interest repayment in a financial year.

   However, note that you must satisfy certain conditions to be eligible for this exemption. For example, your housing loan amount must not be over ₹35 lakhs. The property price must not be above ₹50 lakhs. You should not be the owner of another residential property as of the loan sanctioning date.

3. Home loan tax benefit under Section 80EEA

   Just like the above-listed Section 80EE, Section 80EEA also offers additional tax savings to first-time homebuyers. The Government of India introduced this new section as a part of its 'Housing for All' scheme. It applies to the interest payable on low-cost home loans taken to purchase affordable housing.

   Under Section 80EEA of the IT Act, you can claim a tax deduction of up to ₹1.5 lakhs on the interest repayment per financial year. The stamp duty value of this house cannot be above ₹45 lakhs and the loan amount must be ₹25 lakhs or less. An individual who has purchased the property between April 1, 2019 to March 31, 2022 is eligible for this tax benefit.

4. Housing loan tax benefit under IT Act's Section 24(b)

   Section 24(b) of the Income Tax Act allows you to claim a tax deduction of up to ₹2 lakhs on the interest repayment in a financial year. However, only under-construction properties qualify for this housing loan tax benefit. The house must be constructed within 5 years from the financial year in which you had availed the loan for this claim to be valid. In case the construction takes more than 5 years for completion, you can claim a deductible of ₹30,000 only.

   Note that this tax exemption is applicable to self-occupied properties. There is no construction timeframe or maximum limit on the interest deduction claim for properties let out on rent.

Other Home Loan Tax Benefits You Must Know About

• Joint Home Loan Tax Benefit

  Let us suppose you have taken out a joint home loan with another individual who co-owns the purchased property with you. Both of you can then claim a deductible of up to ₹2 lakhs each on the payable interest in a financial year. Furthermore, both of you can claim a tax exemption of up to ₹1.5 lakhs each on the principal amount repayment under Section 80C of the IT Act. The co-owner could be either a family member or a friend.

• Housing Loan Tax Benefit on Second Home Purchase

  If you have availed another housing loan for purchasing a second home, you can enjoy tax benefits on the second loan as well. Similar to the first loan, you can claim a tax deduction on the principal amount repayment of the second home loan under Section 80C and on the payable interest under Section 24. These exemptions are subject to specific conditions.

The Significance of a Reliable Home Loan Lender

Due to the multiple provisions under different sections of the Income Tax Act, there is more than one way to avail tax benefits on your housing loan. New homebuyers may find it confusing or overwhelming to understand them. You must select a trusted bank or a financial institution as your lender to avoid this confusion. Since these entities know all the tax laws in detail, they can help you maximise your home loan tax benefit. A reliable lender not only makes real estate investments more accessible but also saves your money on IT payments substantially through the applicable tax deductions on home loans.

Conclusion

Taking a housing loan has many financial advantages. It is essential to understand the different tax benefits you can avail on it as per the provisions of various IT Act sections. You must also know the criteria for each home loan tax benefit and check whether it applies to you and your purchased property. Stay tuned to K Raheja Realty’s blog page for home- buying tips and critical insights about the real estate industry.