To encourage more people to invest in properties, the government offers multiple home loan tax benefits under the provisions of the Income Tax Act, 1961. You can take advantage of these tax deductions and significantly save on your tax outgo. To learn about the tax benefits on home loan and the process to claim it, read below.
Elaborating on Home Loan Tax Benefits
1. Tax Deduction of Up to Rs. 1.5 Lakh on Home Loan Principal Repayment – Section 80C
Under Section 80C of the Income Tax Act, 1961, you can claim a tax deduction of up to Rs. 1.5 lakh for the repayment of home loan principal amount. The home loan must be availed either for the purchase or construction of a new residential property. To claim the benefit, the construction of the house should complete within five years from the end of the financial year in which the loan was taken. Also, if the concerned property is sold or transferred within five years, the tax claimed shall get reversed and added to your income.
2. Tax Deduction of Up to Rs. 2 Lakh on Home Loan Interest Payment – Section 24(b)
As per Section 24(b) of the Income Tax Act, 1961, you can claim a tax deduction of up to Rs. 2 lakh every year on your home loan interest payment. The benefit is applicable only on those home loans which were taken on or after April 1, 1999, for buying or constructing a new residential property.
In a scenario where you buy a property and let it out on rent, no upper limit is applicable to claim as home loan tax deduction. If the home loan is taken for an under construction property, then its interest is repaid in the pre-construction and post-construction period. Borrowers cannot claim a tax deduction when the house is under construction. Also, the tax benefit can only be claimed from the year in which the construction of the concerned property is completed.
The possession of under construction properties is usually at a later date. But the repayment of home loans taken for buying such properties commences immediately after taking the loan. Such borrowers can also claim a tax deduction on the interest paid during the pre-construction period for up to five years in five equal instalments.
3. Additional Tax Deduction of Up to Rs. 1.5 Lakh on Home Loan Interest Payment Under Affordable Housing – Section 80EEA
Budget 2019 gave a major push to the ‘Housing for All’ mission by offering an additional tax deduction of Rs. 1.5 lakh on the home loan interest payment under Section 80EEA of the Income Tax Act, 1961. First-time homebuyers who got home loan between the period April 1, 2019 and March 31, 2020 can claim tax benefit under this provision. Another criterion that you must fulfil to avail this benefit is that the value of the housing property should not exceed Rs. 45 lakh.
Check Also: Affordable Housing
4. Tax Deduction for Stamp Duty and Registration Charges – Section 80C
Homebuyers can also claim tax deductions under Section 80C of the Income Tax Act on stamp duty, registration charges and other expenses that are directly related to the transfer of a property and were paid during the property purchase. Tax benefit under this provision is of up to Rs. 1.5 lakh, which borrowers can claim in the year in which these expenses have incurred.
Read More About: Stamp Duty and Registration Charges
How to Maximize Your Home Loan Income Tax Benefit
Homebuyers can maximize their home loan tax benefit by applying for the loan jointly. Joint home loans not only increase your home loan eligibility but also help you maximize tax benefits. Applying for a home loan jointly with an earning member of your family such as your spouse, parents or siblings, etc., allows both co-borrowers to individually leverage tax benefit under Sections 80C, 24(b) and 80EEA of the Income Tax Act, 1961.
How to Claim Tax Benefits on Your Housing Loan
The steps to claim tax benefit on a home loan are:
- Calculate the total amount that you can claim as an income tax deduction
- Furnish home loan interest certificate and home loan EMI statement along with Form 12BB to your employer when asked to submit your income tax proof submission.
- If you miss the above step, claim the home loan tax benefit at the time of filing your income tax returns
- Self-employed borrowers are not required to submit any documents. However, they must keep the proof of the deduction claimed for future use.
Suggested Read: Claim I Both HRA and Home Loan Tax Benefits?