The Government of India offers home loan tax benefits of up to Rs 5 lakh to individuals – deduction of up to Rs. 1.5 lakh on principal repayment under Section 80C and up to Rs. 2 lakh on interest payment under Section 24(b). To boost affordable housing segment, the government had also introduced an additional tax deduction of up to Rs. 1.5 lakh for first-time homebuyers on the home loan interest component under Section 80EEA. This deduction was over and above the tax deduction available under Section 24(b). However, the tax benefit under this section is not longer available for fresh home loan applicants.
|Sections of Income Tax Act||Tax Deduction|
|Section 80C||Up to Rs. 1.5 lakh on principal repayment (including stamp duty and registration fee)|
|Section 24(b)||Up to Rs. 2 lakh on home loan interest paid|
|Section 80EEA||Up to Rs 1.5 lakh on home loan interest paid (for borrowers who availed home loans between April 1, 2019 and March 31, 2022)|
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Tax Deduction on the Home Loan Principal Repayment under Section 80C
As per Section 80C of the Income Tax Act,
- You can claim a deduction of up to Rs. 1.5 lakh on the amount paid as the repayment of the home loan principal. This may include stamp duty and registration fees, but can be claimed once in the same year in which they incurred
- The home loan should have been taken for the purchase or construction of a new house.
Note: If you sell the house property, within five years from the end of the year in which it was bought, all benefits that were availed as per the provisions of Section 80C will get reversed and will be counted in your income at the year in which you sell such property.
Tax Deduction on Home Loan Interest Payment under Section 24(b)
As per Section 24(b) of the Income Tax Act,
- You can claim a tax deduction of up to Rs. 2 lakh on home loan interest paid. This deduction is applicable in case of self-occupied as well as vacant residential properties
- In case of let-out or rented residential properties, there no cap on tax deduction
- This deduction is applicable on:
- home loans taken on or after 01-04-1999
- properties whose acquisition or construction is completed within 5 years from the end of the financial year in which the housing loan was taken
- The deduction for interest on borrowed capital shall be limited to Rs. 30,000, if:
- The home loan is taken before 01-04-1999 for buying or constructing a house property;
- The home loan is availed on or after 01-04-1999 for reconstructing, repairing or renewing of a house property;
- The home loan is taken on or after 01-04-1999 but construction of house property is not completed within five years
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Additional Deduction on Home Loan Interest for Affordable Housing under Section 80EEA
Section 80EEA was introduced in Union Budget 2019 to give a boost to affordable housing segment. Under this provision, first-time homebuyers can claim tax deduction of up to Rs. 1.5 lakh on the interest paid on affordable housing loans. However, tax deduction under Section 80EEA is no longer available to home loans sanctioned on and after 1 April 2022 as the benefits offered under this section were for housing loans sanctioned till 31 March 2022.
To claim the benefit, the following conditions should be met:
- Housing loan should be taken between the period April 1, 2019 and March 31, 2022
- The stamp duty value of residential house property should not be more than Rs. 45 lakh
- You should not own any residential house property on the date of sanction of loan
- You should not be eligible to claim deduction under Section 80EE of the Income Tax Act
Note: Many banks and HFCs offer special home loans schemes aimed at promoting affordable housing. Some of these home loan schemes include Axis Bank Asha Home Loan, ICICI Bank Pratham Home Loan, PNB HFL Roshni Home Loan, Indiabulls Rural Home Loans, Aadhar Housing Finance Home Loan, YES KHUSHI Home Loan and GIC Affordable Home Loan
Tax Deductions on Joint Home Loans
Applying for a home loan jointly not only enhances your home loan eligibility but also the tax benefits. Individuals taking a home loan jointly can avail home loan tax benefits individually. This implies that if two individuals have applied for a joint home loan, each can claim tax benefit of up to Rs. 1.5 lakh and Rs. 2 lakh on their home loan principal and interest, respectively. Considering the co-applicants are buying house for the first time, they will get an additional tax deduction of up to Rs. 1.5 lakh, giving them a combined tax benefit of total Rs. 10 lakh, provided they meet the related prerequisites. The same goes if the borrowers want to claim additional tax benefit under Section 80EEA of the Income Tax Act.
Another benefit of adding a co-applicant is that it increases your eligibility for a higher loan amount as in such cases lenders consider the repayment capacity and credit scores of all co-applicants. And in cases where the co-applicant is a female family member, lenders such as HDFC Bank, Union Bank of India, SBI and Bank of India offer an interest rate concession of up to 0.05% to women borrowers. Therefore, adding an earning female member of the family as a co-applicant can help you get home loan at lower interest rates.
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Tax Deductions on Second Home Loan
With effect from Assessment Year 2020-21, the tax deduction on home loan interest shall be allowed in respect of two self-occupied residential properties. However, the aggregate amount of deduction under this provision shall remain the same i.e., Rs. 30,000 or Rs. 2 lakh, as the case may be, otherwise the deduction is limited to Rs. 30,000.