Home loans come with tax benefits that can help reduce the overall tax liability of the borrower. The principal amount and interest paid on a home loan are eligible for tax deductions under different sections of the Income Tax Act.
Home loans are easily accessible to individuals who meet the eligibility criteria set by banks and financial institutions. This has helped many people fulfil their dream of owning a home.
Owning a home is considered a valuable asset in India, and it is often seen as a long-term investment that can provide financial security and stability to individuals and their families.
In 2020-21, the government announced that all old regimes of income tax rebates on home loans are applicable till the year 2024.
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By providing tax benefits, the government aims to make home ownership more affordable for people and to boost the demand for housing. This, in turn, helps to stimulate the growth of the housing industry, which is a key driver of the economy.
There are two components of EMI in any home loan, i.e., principal amount and interest amount.
Tax deduction on principal repayment:
Under Section 80C of the Income Tax Act, a borrower can claim a deduction of up to Rs. 1.5 lakh on the principal repayment of a home loan. This deduction can be claimed only if the borrower has taken the loan for the purpose of buying or constructing a residential property. This deduction can be claimed along with other tax-saving instruments like PF, insurance, fixed deposits etc..
Tax deduction on interest paid:
Under Section 24 of the Income Tax Act, a borrower can claim a deduction of up to Rs. 2 lakh on the interest paid towards a home loan in a financial year. This deduction can be claimed only if the borrower has taken the loan for the purpose of buying or constructing a residential property.
Deduction for first-time homebuyers:
Under Section 80EEA of the Income Tax Act, a first-time homebuyer can claim an additional deduction of up to Rs. 1.5 lakh on the interest paid towards a home loan. This deduction is available over and above the deduction of Rs. 2 lakh allowed under Section 24.
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In case of a second home bought with a home loan and the property is self-occupied or rented out, you can still get housing loan tax benefit up to Rs 1.5 lakh.
Also, a maximum deduction of Rs 50,000 can be claimed under Section 80EE on the interest portion of the home loan EMIs. This deduction is over and above the deduction claimed on the interest amount under Section 24(b) of the Income Tax Act.
However, you can claim a deduction only under one of these sections: Section 80EE and Section 80 EEA, depending upon when your home loan was sanctioned.
Under Section 80EE, home loans must have availed in financial years 2013-14, 2014-15 and 2016-17, with the loan amount not exceeding Rs 35 lakh and the value of your property not exceeding Rs 50 Lakh.
In Section 80EEA, home loans must have been taken in the financial years 2020-21 and 2021-22. Like Section 80EE, this is also only for first time homebuyers, which means you should not own any house on the day of sanction of loan.
The stamp duty value of residential house property should not be more than Rs. 45 lakh.
Pre-construction phase
Section 24b of the IT Act provides a tax break on interest payments on home loans. Within the overall limit of Section 24b, the deduction for interest paid is available for up to Rs 2 lakh.
