If you are looking to buy a home in India, you might be wondering about the tax implications of the loan you take out to purchase the property.

In this article, we’ll take a look at the various tax benefits (the Income Tax Act of 1961) on home loan that are available to homebuyers in India, and help you decide whether or not these benefits are right for you.

A typical home loan includes both principal and interest payments.

Both of these categories are tax deductible. The principal repayment of a mortgage is deductible under Sections 80C, whereas the interest portion is deductible under Section 24(b) of the Income Tax Act of 1961.

Lets see the various benefits available under different section. The synopsis is here-under:

Tax benefits under Section 80C

You can claim tax deduction under section 80c for both ” principal repayment” and “stamp duty & registration charges”. Lets see how:

Principal Repayment

The principal repayment portion of the EMI is eligible for a tax deduction of up to Rs 1.5 lakh per financial year under section 80(c) of the Income Tax Act.

Please note that you can available this tax deduction only on completed residential property ( NOT for under-construction property).

Moreover, this benefit will be lost if you sell your property before five years have passed since the end of the fiscal year in which you first took possession of it.

In other words, if you sell your home within five years of taking possession, any claimed deduction will be reversed in the year of sale. This amount will also be included in your income for the year in which the house is sold.

For example: If you buy a property in Nov 2022 (FY 22-23) and sell it before FY 30-31, you will have to loose this benefit.

Don’t worry, we will see how to manage this situation later in this article.

Stamp Duty & Registration Charges

Stamp duty and registration fees can also be claimed as tax deductions under section 80(c) of the Income Tax Act, but they must be within the overall limit of Rs 1.5 lakh applied to principal repayment.

This benefit is available whether or not you take out a home loan. Furthermore, this benefit is only available in the year in which the expenses are incurred.

Tax benefits under Section 24B – Interest Payment

Section 24(b) of the Income Tax Act allows you to deduct the interest paid on your home loan.

A maximum tax deduction of Rs. 2 lakh can be claimed from your gross income annually for a self-occupied house, provided the construction/acquisition of the house is completed within 5 years.

Furthermore, in the case of a self-occupied home, the loan must be borrowed solely for the purpose of acquisition or construction (i.e. not for repair, renewal, reconstruction).

If the construction/acquisition period exceeds the specified time frame, you can only claim interest deductions on home loans for purchase, construction, repair, renewal, or reconstruction up to Rs. 30,000 per year.

On the other hand, if you have rented out your property, you can claim the entire amount of interest paid on your home loan for purchase, construction, repair, renewal, or reconstruction as a tax deduction.

READ MORE: Home Buying Guide- 2024

Moreover, there is no time limit for completing the property’s construction.

However, it is important to note that in a given year, the set-off of loss under the head ‘income from house property’ against any other head of income is limited to Rs. 2 lakh.

Moreover, any unabsorbed loss is allowed to be carried forward for set-off in subsequent years under the provisions of the Income Tax Act.

Under Construction Property

If you purchase an under-construction property and pay the EMIs, you can deduct the interest on your housing loan after the construction is completed.

The Income Tax Act allows for the deduction of both pre-construction and post-construction period interest.

Interest on pre-construction loans is deductible in five equal annual instalments beginning with the year the house property is acquired or constructed.

Thus, the total interest deduction available to a taxpayer under Section 24(b) is 1/5th of interest pertaining to the pre-construction period (if any) + interest pertaining to the post-construction period (if any).

Joint Home Loan

If you take out a home loan jointly, each borrower can claim a deduction for home loan interest up to Rs 2 lakh under Section 24(b) and a tax deduction for principal repayment up to Rs 1.5 lakh under Section 80C.

When compared to a single applicant home loan, this doubles the amount of deductions available.

It is required, however, that both applicants be co-owners of the property and service the EMIs.

Second Home Loan

If you take out a second home loan to buy another property, you can get the above tax benefits, but the total amount of deductions is subject to the respective caps mentioned above.

The Government has provided additional incentives for investing in real estate in the 2019 Union Budget.

Previously, only one property could be considered self-occupied, and a second property was deemed to be let out, and thus notional rent was calculated and taxed as income.

However, a second home can now be considered a self-occupied property.

Although a home loan has a financial cost, using your loan wisely can significantly reduce your financial burden and help you maximize your tax savings.

Conclusion

Don’t panic! These benefits are not just enough to make the dream home loan possible but also a financially sound decision.

You can check the eligibility criteria and complete details of the tax benefits under each section be

FAQs

The post Tax benefits on home loan | A Complete Guide first appeared on Trupaisa.

Lets see 5 Smart Ways to Save Tax Without Any Investment in 2024!

Normally, in order to save tax, we all invest in tax-saving financial instruments such as ELSS (Equity Linked Saving Schemes), National Pension System (NPS), Public Provident Fund (PPF), National Savings Certificate (NSC), tax-saving fixed deposit, life and health insurance policies, and so on.

However, at times we face financial crunch. We want to save on our tax outgo but don’t have money to invest.

No worries now.

There are still some options that can assist us in lowering our tax bill without requiring any investment.

Some of ways are discussed below:

1- House Rent Allowance (HRA) Under Section 10(13A)

If you are a salaried individual living in rented housing, you can save some tax by paying rent to the landlord.

If your employer provides you with a house rent allowance (HRA), you can claim an exemption for the rent paid under the provisions of Section 10(13A) of the Income Tax Act.

In the case of other individuals, and where no HRA is received by the employee, a deduction of up to Rs 5000 per month can be claimed under Section 80GG of the I-T Act for rent paid in respect of accommodation occupied by the individual for his own residence (subject to prescribed conditions).

2- Deductions For Medical Expenses of Senior Citizen Parents U/S 80D

Section 80D allows you to deduct premiums paid for health insurance policies for yourself, your spouse, dependent children & parents.

You should buy health insurance for everyone in your family, but even if you don’t, you can claim deductions for preventive health check-ups up to Rs 5,000.

Furthermore, healthcare expenses incurred by you as a senior citizen or by you for your senior citizen parents can be deducted up to Rs 50,000 if the senior citizen is not covered by health insurance.

3- Deductions for children’s tuition fees under section 80C

Expenses for our children’s education consume a significant portion of our income.

As a result, maximising the tax benefits associated with these costs (children’s education ) makes a lot of sense.

Parents can claim a tax deduction of up to Rs 1.5 lakh for tuition fees paid for their children’s education under Section 80C of the Income Tax Act.

Remember that this benefit applies to any full-time education program offered by any registered institution, including schools, colleges, and even pre-schools and nurseries.

Tuition fees paid for up to two children per taxpayer do not qualify for this benefit (i.e. a couple consisting of two individual taxpayers may avail of this benefit for up to four children).

Furthermore, this benefit only applies to the tuition fee and not other payments such as development fees, late payment fees, and so on.

Furthermore, if your employer provides a children’s education allowance and a hostel expenses allowance, you can claim tax exemption on these allowances up to Rs 1,200 per year and Rs 3,600 per year for up to two children.

READ MORE: Tax benefits on home loan 

4- Increase your EPF contributions with VPF (Voluntary Provident Fund)

We all know about EPF. It stands for Employee Provident Fund.

Salaried persons contribute 12% of their basic salary and DA (Dearness Allowance) into EPF.

Besides this, employee has an option to contribute amount top of EPF.

This can be done by means of VPF (Voluntary Provident Fund).

100% of their basic salary and DA can be contributed in VPF by an employee.

Anyone who is keen to opt for this, can contact their HR department and express their desire to participate in VPF.

Please note that employees are eligible for tax deductions of up to Rs 1.5 lakh under Section 80C for their EPF and VPF contributions.

5- Principal & Interest on Home Loan (Under Section 80EE)

Taking out a home loan is perhaps one of the best and known ways to save money on taxes.

It offers a number of deductions.

Ordinarily, you can deduct up to Rs 1.5 lakh from the principal repayment of a home loan under Section 80C and up to Rs 2 lakh from the interest repayment under Section 24B.

Under 80C, you can prepay the principal and earn exemptions of up to Rs 1.5 lakh, avoiding the need to purchase additional tax-savers.

You may be eligible for additional tax deductions of Rs 50,000 under Section 80EE or Rs 1.5 lakh under Section 80EEA on your loan interest repayment depending on the property you’ve purchased, the amount you’re borrowing, and the year of your loan sanction.

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