Do you want to know more about tax benefits on home loan, tax benefits on under-construction property or, tax benefits on your 2nd home, etc. If the answer is yes, this article is for you.
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:
| Section | Tax Deduction | Amount |
| 80C | Principal Repayment | Up to Rs 1.5 lacs |
| 80C | Deduction for stamp duty and registration charges | Up to Rs 1.5 lacs |
| 24B | Interest Payment | Up to Rs 2 lacs |
| 26 | Home loan for “Joint Owners” | Up to Rs 2 lacs for each co-borrower |
| 80EE | Interest Payment (Loan sanctioned between April 2016 and March 2017) | Up to Rs 50,000 |
| 80EEA | Interest Payment (Loan sanctioned between April 2019 and March 2022) | Up to Rs 1.5 lacs |
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
What are the tax benefits for Home Loan Top-Up?
A top-up home loan is eligible for tax benefits under Section 80C if used for the purchase or construction of residential property, and Section 24(b) if used for the acquisition, construction, repair, renewal, or reconstruction of residential property, depending on the deduction claimed.
Can a spouse claim deduction on home loan on joint names?
Yes. Spouse 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.
What are the tax benefit on home loan insurance?
You can claim a tax deduction for the premium paid for a home loan protection insurance plan under Section 80C. When you borrow the premium money from your lender and pay it back in EMIs, the deduction is not allowed.
What are the tax benefits on loan against property?
Yes. You can avail tax benefits on loan against your property, but it depends on the end use of the loan. Under section 37 you can avail tax benefits on your loan for interest paid. Whereas, Under section 24 you can avail tax benefits on your loan for interest paid ONLY if you use raised funds to buy a new home. Here the maximum limit to avail benefit is Rs 2 lacs.
Is tax benefit available on 2nd home loan?
Yes. it is. You can avail tax benefits on interest paid under section 80C to your second home but you are not eligible to get tax benefits for the principal component of your EMI.
What are the tax benefits on home loan for under construction?
Tax deductions cannot be claimed until the construction is completed. Once completed, you can claim an aggregate of interest paid for the year preceding the year of possession. This can be claimed in five equal instalments beginning with the year the construction is completed.
What are the tax benefits on home renovation loan?
Under section 24, you can avail tax benefit of maximum Rs 30,000 per annum on the interest component.
What is the maximum tax benefit on home loan?
The maximum tax deduction for a housing loan is listed below according to various sections of the Income Tax Acts.
- Section 24(b) allows for a maximum of Rs 2 lakh for a self-occupied home.
- Section 80C allows you to deduct up to Rs 1.5 lakh.
Can I claim a tax deduction if I build a house and then sell it within 5 years?
If you sell the house within 5 years of the end of the fiscal year in which you obtained possession of such property, as per Section 80C, the tax deduction for repayment of the principal amount of the loan claimed will be reversed. The interest payment deduction will remain unchanged (there is no comparable provision for reversal of interest deduction claimed under Section 24(b)).
What is reverse mortgage loan?
A reverse mortgage loan is a type of home equity loan that allows seniors to borrow against the equity in their home. This loan can be used to help finance various expenses, such as the purchase of a new home, the restoration or improvement of an existing home, or the purchase of a car.
Reverse mortgage loans are often considered an attractive alternative to traditional mortgages because they offer borrowers the opportunity to keep their homes while taking advantage of relatively low interest rates.
Can I claim both 24b and 80EE?
You can claim the interest income and deduction limit of 24b only, while claiming the housing loan interest income and affordable property deduction of 80EE.
Can I claim both 80EE and 80EEA?
Yes, you can claim the interest income and deduction limit of 80EE as well as the housing loan interest income and affordable property deduction of 80EEA.
Doesn’t a personal loan or vehicle loan carry tax benefits?
Home loan interest income is tax-deductible, but vehicle loan interest income is not.
Should I buy a home or rent?
Purchasing a home is generally the best financial decision for long-term savings, but it’s important to carefully consider your budget and goals before making an investment.
Which is better: Fixed or Variable rate mortgage?
A fixed-rate mortgage offers stability and security over the life of the loan, while a variable-rate mortgage can offer lower interest rates during times of low inflation.
How much should I borrow to buy a home?
It’s important to factor in your income and the interest rate of the home loan you’re considering when determining how much money you have available to buy a home.
When is the best time to buy a home in order to minimize taxes and maximize profit?
The best time to buy a home is usually during the housing market’s ” upturn.”
What kind of real estate investment do you recommend, and why?
Buying and holding property is the most common type of real estate investment, but there are also a variety of other options available, such as investing in income-producing real estate ventures such as REITs.
What is the full form of MCLR?
MCLR stands for Marginal Cost of Funds Based Landing Rate.
What is MCLR?
The minimum lending rate below which a bank is not allowed to lend is known as the Marginal Cost of Funds based Lending Rate (MCLR). MCLR system has relaced the earlier “base rate” system.
To determine the lending rates for commercial banks, MCLR has taken the place of the previous “base rate” system.
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