Let’s examine the numerous tax breaks available for a home loan and the reasons you ought to take advantage of them.
Key Highlights
- There are several tax benefits associated with home loans such as Section 24(B), Section 80 C and Pre-EMI interest deduction.
- Borrowers can claim a deduction upto INR 2 lakhs under Section 24(B) if the Income Tax Act.
- First time home buyers can claim deductions under Section 80EEA of the Income Tax Act.
As homeowners, it is essential to be aware of the various tax benefits available on home loans.
By understanding the tax regulations and provisions, individuals can maximise their savings and reduce their overall tax liability.
Section 24(B): Deduction on Interest
One of the most significant tax benefits of a home loan comes under Section 24(B) of the Income Tax Act.
Borrowers can claim a deduction under this section on the interest paid on capital borrowed for purchase, construction, repair, or reconstruction.
This section allows a deduction up to INR 2 lakhs when it comes to self-occupied home property.
If money is borrowed on or after April 1, 1999, and house property is acquired or constructed within five years, a deduction upto the INR 2 lakhs will be permitted.
Section 80C – Deduction on Principal Repayment
Section 80C addresses the deductions for principal amounts.
You can claim a deduction of up to Rs. 1.5 lakh from taxable income on principal repayment each fiscal year for both self-occupied and rented properties.
To be eligible for this deduction, you must not sell your home within five years after moving in.
Any claimed deduction will be reversed in the year of sale if you sell your home within five years of taking possession.
Section 80EEA – Interest Deduction for First-Time Homebuyers
The interest on a house loan that must be paid can be deducted under Section 80EEA.
Deductions under Section 80EEA are permitted up to INR 1,50,000 in a fiscal year.
The deduction under Section 80EEA is available to individuals who have taken a home loan for an affordable housing project and did not own any residential house property on the date of the sanctioning of the loan..
The home loan amount should be less than Rs. 35 Lakhs, and the property’s value should be less than Rs. 45 Lakhs
Be aware that the benefit of this section is available only to first-time home buyers.
Additional Home Loan deduction rules that can yield financial benefits
In addition to tax deductions, individuals who are taking a home loan have the opportunity to save money through various other deduction rules.
These rules encompass a range of expenses related to owning a home and can significantly impact one’s financial situation.
Joint Home Loans: Higher Allowances for Deduction
Each home loan holder may deduct up to Rs 1.5 lakh in principal repayment under Section 80C from their tax returns if the loan is taken out jointly.
They must also be co-owners of the property that was borrowed in order to be eligible for this deduction. So, you may be able to claim a bigger tax benefit if you take out a loan jointly with your family.
Maximise Savings with Pre-EMI Interest Deduction
In the realm of home loans, many individuals choose to avail themselves of a pre-EMI period before the commencement of their actual equated monthly instalments (EMIs), including both principal and interest payments.
It is noteworthy that the interest paid during this pre-EMI period can also be claimed as a deduction.
This deduction can be availed in five equal instalments, commencing from the year in which the construction work or acquisition of the property is completed.
Such a provision allows homeowners to effectively manage their finances and reduce their overall tax liability.
