Buying a home is a significant financial decision, and one of the most popular ways to finance it in India is through a home loan. But, what makes home loans even more attractive is the tax benefits that come with them. If you’re taking a home loan, understanding the tax benefits can help you save money while repaying your loan.
In this guide, we’ll walk you through all the tax deductions available on home loans in India, explain who can claim them, and show you how to maximise your savings.
Tax Benefits Under Section 80C
The first tax benefit available on home loans falls under Section 80C of the Income Tax Act, 1961. This section allows you to claim deductions on the principal amount of your home loan.
How Much Can You Save?
You can claim up to ₹1.5 lakh in deductions under Section 80C.
This limit includes not just your home loan repayment but also other savings instruments like EPF, PPF, ELSS, etc.
Conditions to Claim This Benefit:
The house must be completed and not under construction.
You must retain ownership for at least five years. If you sell the property before five years, any tax deductions claimed will be added back to your income for that year.
Tip: If you're repaying your home loan, make sure to claim the deduction every year to fully utilise the ₹1.5 lakh limit.
Tax Benefits Under Section 24(b)
This section allows you to claim a deduction on the interest paid on your home loan. The good news is, interest often forms a significant part of your EMI, so the savings here can be substantial.
How Much Can You Save?
You can claim up to ₹2 lakh on the interest paid if the house is self-occupied.
If the house is rented or deemed to be rented, there’s no upper limit on the interest you can claim, but your overall loss from house property that can be set off against other income is capped at ₹2 lakh per year.
Conditions to Claim This Benefit:
The loan must have been taken for the purchase or construction of the house, and the construction must be completed within five years from the end of the financial year in which the loan was taken.
If the construction isn’t completed within five years, the deduction is reduced to just ₹30,000.
Tip: Keep all documents related to your loan and construction handy. These may be required in case of scrutiny by tax authorities.
Additional Deduction Under Section 80EEA
For first-time homebuyers, Section 80EEA provides an additional tax benefit over and above the deductions available under Section 24(b). This is meant to encourage affordable housing.
How Much Can You Save?
You can claim an additional deduction of up to ₹1.5 lakh on the interest paid, apart from the ₹2 lakh you can claim under Section 24(b).
Conditions to Claim This Benefit:
The loan must be sanctioned between 1st April 2019 and 31st March 2022.
The property’s stamp duty value must not exceed ₹45 lakh.
You must not own any other residential property at the time of loan sanction.
Tip: This section is especially useful if you're buying your first home. Make sure to check your eligibility with your lender and tax advisor to take advantage of this extra deduction.
Tax Benefits for Joint Home Loans
If you're taking a home loan with a co-borrower (such as your spouse or a family member), you can significantly increase your tax benefits. This is because both borrowers can claim tax deductions individually.
How Much Can You Save?
Each co-borrower can claim deductions on both the principal and interest portions of the loan.
For example, under Section 80C, each borrower can claim up to ₹1.5 lakh on the principal, and under Section 24(b), each can claim up to ₹2 lakh on the interest.
Conditions to Claim This Benefit:
Both borrowers must be co-owners of the property.
The loan must be repaid from a joint account or through contributions from both borrowers.
Tip: If you're planning to take a joint home loan, make sure the ownership is clear, and the EMIs are paid jointly. This way, you can effectively double the tax benefits.
Pre-Construction Interest Deduction
If you're taking a home loan to construct a house, you won’t be able to claim tax deductions until the construction is completed. However, the interest you pay during the construction period isn’t entirely lost.
How Much Can You Save?
You can claim a deduction for pre-construction interest in five equal installments once the construction is completed.
This deduction falls under Section 24(b) and is subject to the overall limit of ₹2 lakh for self-occupied properties.
Tip: Keep detailed records of the interest paid during the pre-construction phase. You'll need these records when you start claiming deductions after construction is completed.
Tax Benefits on Stamp Duty and Registration Charges
In addition to the principal and interest deductions, you can also claim tax benefits on the stamp duty and registration charges paid while buying the house.
How Much Can You Save?
These expenses can be claimed under Section 80C, subject to the overall ₹1.5 lakh limit.
Conditions to Claim This Benefit:
You can only claim these expenses in the year of purchase.
If you forget to claim this deduction in the year of purchase, you won’t be able to claim it in the following years.
Tip: When buying a house, keep your stamp duty and registration receipts safe and ensure that you claim this deduction in the year of purchase.
Conclusion: Maximising Your Tax Benefits
Taking a home loan in India not only helps you finance your dream home but also offers significant tax savings. By fully understanding the deductions available under Sections 80C, 24(b), and 80EEA, you can save on taxes while managing your loan effectively.
Here’s a quick summary of how you can maximize your tax benefits:
Claim deductions on both principal (under 80C) and interest (under 24(b)).
If you’re a first-time homebuyer, take advantage of the extra savings under Section 80EEA.
Consider taking a joint home loan to double the tax benefits.
Don’t forget to claim pre-construction interest in equal installments once the house is ready.
Make sure to claim stamp duty and registration fees under Section 80C in the year of purchase.
By being mindful of these points and consulting with your tax advisor, you can ensure that you make the most out of your home loan tax benefits.
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