Tax Benefits on Home Loans

Tue, 09/13/2022 - 08:40

Author: JLL


We all have taken loans at some point in time-be it for buying a home, constructing one, or renovating it. We find loans a better option to finance our needs and elevate our lifestyles. While we take loans, we are aware of the interest rates to be paid, but what about the taxes and financial savings that we can make out of this? Many of us are ignorant of the benefits that a home loan can provide. So, today we will be discussing the tax benefits provided on home loans under section 24, section 80C, and section 80EE listed under the Income Tax Act.

Tax Benefits on Home Loan

Section 24

Section 24 is titled "Deductions from income from house property". Individuals can deduct two types of expenses under this section: a) standard deductions and b) interest on loans. a) Standard deductions— This exemption is available to all taxpayers whose total net annual value exceeds 30%. In the case of self-occupied property, you are not eligible to claim the deductions under Section 24. b) Loan Interest - If the home loan is used to buy, build, or renovate a home, the interest paid on the principal amount may be exempt. You can claim an exemption of up to Rs. 2 lakhs if the property is self-occupied. In the case of under-construction, you can claim deductions for the interest paid upfront in five equal payments starting in the year that the house is purchased, or the construction is finished. However, in the case of a loan taken for renovation, you cannot claim the tax exemptions until it gets completed.

Section 80C

Section 80C provides an exemption of up to Rs. 1,50,000 lakhs, including various other investments such as equity mutual funds, tax-saving fixed deposits, PPF Account, Senior Citizens Savings Scheme, and National Savings Certificate. This section also permits you to claim your paid stamp duty and registration fee without mandating you to take a home loan. For under-construction property, the same can be claimed post-completion of the construction. These properties are priced low but require you to pay a high GST. However, if you sell any property within five years from the date of purchase, you won’t be entitled to enjoy the tax benefit under section 80C.

Section 80EE

Section 80EE caters to first-time homebuyers with a maximum deduction limit of Rs. 50,000 on home loan interest payments, which can be further exceeded up to 2 lakhs under section 24. However, the home loan amount sanctioned by the financial or housing institutions must not exceed Rs. 35 lakhs against the overall value of the purchased property of Rs. 50 lakhs. The deductions can be claimed for the current fiscal year only and no previous year’s deductions can be claimed. The above sections under income tax can save you a good amount of money, which you can utilise to meet your personal goals. For more information on buying, renting, or selling a property, you can seek expert advice.