The Government of India offers tax benefits on home loans under the Income Tax Act of 1961. Home loan borrower can get benefit of tax deduction on principal repayment under section 80c, tax deduction on interest under section 24, and additional home loan interest tax benefit for first-time home buyers under section 80ee. These home loan tax benefits help borrowers save substantial amount of money every year. And even more so after the Finance Minister Nirmala Sitaraman presented her maiden 2019 Union Budget on 5th July. Let’s look at the updated income tax benefits on home loan FY 2019-20 so that you can make the most of it.
Table of Contents :
- Tax Deduction on the Home Loan Interest Paid under Section 24(b)
- Tax Deduction on the Home Loan Principal Repayment under Section 80C
- Section 80EE: Additional Tax Deduction for First-time Home Buyers
- Section 80EEA: Additional Tax Deduction on PMAY – CLSS scheme
- Tax Deductions on Home Loans for Joint Owners
- Tax Deductions on Second Home Loan
- How to Claim Home Loan Tax Benefit
Tax Deduction on the Home Loan Interest Paid Under Section 24(b)
As per Section 24(b) of the Income Tax Act, you can avail tax benefit on home loan interest amount. Under this Section, you can claim tax deduction of up to Rs. 2 lakh on the interest payment of home loan for a self-occupied property. However, no maximum limit applies in case such property, which is not self-occupied, is rented or deemed to be rented. The taxpayer can avail deduction of whole amount paid under the section 24. But if the owner of the property due to occupation or employment does not occupy the house and is residing at another place, the maximum tax deduction allowed will be Rs. 2 lakh. A property should be purchased or constructed within a period of five years from the end of the financial year in which the loan was taken.
| Particulars | Section 24(b) of the Income Tax Act for Home Loan |
| Tax Deduction allowed for | Interest |
| Type of Property | Any Real Estate Property |
| Basis of Tax Deduction | Accrual basis |
| Quantum of Tax Deduction allowed | Self Occupied Property: Rs. 2,00,000 Non Self Occupied Property: No Limit |
| Purpose of Loan | Purchase/ Construction/ Repair/ Renewal/ Reconstruction of a Residential House Property. |
| Eligibility for claiming Tax deduction | Purchase/ Construction should be completed within 5 years |
| Restriction on Sale of Property | Nil |
Tax Deduction on the Home Loan Principal Repayment under Section 80C
Section 80C of the Income Tax Act provides tax benefit on home loan relating to the principal amount. Under this section, the amount paid as the repayment of home loan principal amount, is allowed as a deduction of up to Rs. 1.5 lakh.
Conditions for Tax Deduction on the Home Loan Principal Repayment as per section 80C FY 2019-20:
- Such deduction is allowed only after the construction of the house is completed. Moreover, the completion certificate should be awarded for the purpose of obtaining such deduction. Such deduction shall not be allowed for a period under which the property was under construction.
- The point to be noted under such deduction is that as per section 80(5) of the income tax act, you shall not transfer the property, for which deduction under section 80 is being obtained. Such property shall not be transferred for a minimum period of five years from the end of the year in which the possession of such building is obtained by you. If such property is sold within a time period of 5 years, all deductions which were allowed as home loan tax benefit in the erstwhile years shall be deemed to be the your income at the year in which you make the sale of such property.
| Particulars | Section 80C of the Income Tax Act |
| Tax Deduction allowed for | Principal |
| Type of property | Only residential house property |
| Basis of tax deduction | Paid basis |
| Quantum of Tax Deduction allowed | Rs. 1,50,000 |
| Purpose of loan | Purchase / Construction of a new house property |
| Eligibility for claiming tax deduction | Nil |
| Restriction on sale of property | Deduction claimed would be reversed if property is sold within 5 yrs. |
Additional Tax Deduction for First-time Home Buyers under Section 80EE
Under this section, one can avail benefit of income tax on interest on home loan for those people who are buying a home for the first time. As per the provisions of this section, an additional deduction of Rs. 50,000 shall be allowed to people who make payment of interest on home loan. This incentive shall be separate and in excess of the deduction of Rs. 2 lakh allowed under Section 24 and the deduction of Rs. 1.5 lakh allowed under Section 80C.
Conditions for Tax Deduction on the first Home Loan Interest as per section 80EE FY 2019-20:
- The taxpayer should not own any other property at the time of loan application. The property against which the loan is taken should be the first
- The value of property should be Rs. 50 lakh or less
- The home loan taken should be of Rs. 35 lakh or less
- The amount of such loan should have been sanctioned to an individual between April 1, 2016 and March 31, 2017
| Particulars | Section 80EE |
| Tax Deduction allowed for | Interest |
| Type of property | Only residential house property |
| Basis of tax deduction | Paid basis |
| Quantum of Tax Deduction allowed | Rs. 1,50,000 |
| Purpose of loan | Purchase / Construction of a new house property |
| Eligibility for claiming tax deduction | Nil |
| Restriction on sale of property | Nil |
Additional Tax Deduction on PMAY – CLSS scheme: Section 80EEA
To make buying houses more affordable, the government has extended the interest deduction allowed for low-cost housing loans taken between the period April 1, 2019 and March 31, 2020. As per the new Section 80EEA, you can claim a deduction of up to Rs. 1.5 lakh on the interest paid on home loan.
To claim the benefit, the following conditions should be met:
- 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
Section 80EE or Section 24 – Which One to Claim?
If you are able to satisfy the conditions of both Section 24 and Section 80EE of the Income Tax Act, be quick to claim the benefits. First, exhaust your deductible limit under section 24, which is Rs. 2 lakh. Then go on to claim the additional benefits under section 80EE. Therefore, this deduction is in addition to the Rs 2 lakh limit allowed under section 24.
Tax Deductions on Joint Home Loans
Applying for home loan jointly not only enhances your home loan eligibility but also the tax benefits. Individuals taking home loan jointly can avail home loan tax benefits individually. This implies that if two individuals have applied for 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. So the combined tax benefit that they enjoy is of total Rs. 7 lakh, provided they meet the related prerequisites. The same goes if the borrowers want to claim additional tax benefit under Section 80EE of the Income Tax Act.
Read Also: What No One Tells You About Joint Home Loan?
Tax Deductions on Second Home Loan
You can claim tax deductions on second home loan but only on the home loan interest paid. Currently, individuals can claim home loan tax benefit only for one property as self-occupied and make tax payments on the other based on notional rent. In the February 2019’s Interim Budget, a proposal has been put forward wherein an individual can claim a second home as self-occupied property. This aims to help borrowers save more in the form of taxes.
How to Claim Home Loan Tax Benefit?
The process to claim tax benefits on a home loan is easy and simple.
- Make sure the residential property is in your name. In case of a joint home loan, ensure to be the house’s co-owner.
- Calculate the total amount you can claim as a tax deduction.
- Hand over your employer the home loan interest certificate so that he can adjust the TDS.
- On failing to follow this step, you need to file your IT returns.
Self-employed borrowers need not submit these documents. They must keep these handy to provide if a query arises in the future.