Recognising the importance of owning a house, the Indian government offers numerous home loan tax benefits.
Numerous provisions of the Income Tax Act of 1961 encourage residents to invest in real estate. These advantages not only lower your tax cost but also offer an incentive to opt for such financing instruments. Some of these provisions include Section 80C, Section 24 and Section 80EE.
So, read on to know more about the housing loan tax benefits available to you.
Proposal to not include the tax deductions on home loan interest during the holding period when calculating capital gains from the sale of a residential property
Additional budgetary outlay of ₹79,000 Crores for the Pradhan Mantri Awas Yojana (PMAY)
The home loan tax benefits under the applicable sections of the Income Tax Act of 1961 are listed below:
Provisions of the Income Tax Act
Maximum Deductible Amount
You can avail of a house loan tax exemption of up to ₹1.5 Lakhs every year on the principal component repaid on your home loan
You can claim this tax saving on a home loan taken for a property that either you are occupying or have rented out
To be able to claim it, you should ensure that the property is fully constructed
You should hold onto the house for at least 5 years to be able to claim the tax deduction on a housing loan.
If you sell the home within 5 years, the deductions shall be reversed and will be counted as income for the year in which the sale is made
Section 24 allows you to enjoy deductions on the interest part of your housing loan EMI paid for the year. Under this section, you enjoy deductions of up to ₹2 Lakhs
The interest paid on a home loan for a rented property qualifies for dedication, and it has no upper limit
However, the housing loan tax benefits that can be claimed under the heading of House Property are limited to ₹2 Lakhs. This deduction is available beginning with the year in which the house is constructed
Under this section, you will be able to claim a housing loan interest deduction of up to ₹50,000 every year on the interest component of the home loan
Note that this housing loan tax benefit can be availed over and above the ₹2 Lakhs deduction you can avail under Section 24(b)
The value of the property must be less than ₹45 Lakhs
Buying a plot or home is expensive, and there are miscellaneous expenditures such as registration fees and stamp duty added to this cost. These fees are required for all new property owners in order to complete the transfer procedure.
Stamp duty rates may amount to up to 10% of the property value, while registration fees are typically 1% of the property value. This extra expense places additional pressure on property purchasers.
To alleviate this burden, the government has incorporated these expenditures as deductions under the Income Tax Act of 1961. These costs are allowable deductions under Section 80C of the Act.
According to this provision, the highest deduction or tax benefit that a house buyer may claim for the additional expenditure of registration fees and stamp duties is ₹1.5 Lakhs, subject to the underlying requirements indicated in this section.
When can registration fees and stamp duty be deducted under Section 80C:
Only HUFs and individuals are eligible to claim this deduction on their income tax returns
Deductions for registration fees and stamp duty may only be claimed in the year that the expenditures are paid
The assessee must have paid the amount against these costs
A claim for this deduction is only tenable or valid if the property has been completed and the owner has legal possession of the home
Payment for such fees is not permitted for under-construction property
Another significant criterion is that the residence must be owned by the taxpayer seeking the deduction
The deduction is not permitted when expenditures are paid by someone else
The deduction under this clause is exclusively applicable for new residential property, not commercial or resale property
Section 80C allows joint owners to deduct costs in the amount they share the residential property up to ₹1.5 Lakhs each
Residential plots of land are also ineligible for Section 80C deductions
Any additional expenditures paid for the purpose of transferring property, such as service tax, are likewise deductible under Section 80C
If the housing property is transferred within 5 years after purchase, the total amount of deduction permitted is regarded to represent the assessee's income in the fiscal year or prior year in which the transfer occurred.
As a result, the assessee will be required to pay tax in the assessment year of the transfer of residential property. Such expenditures, however, cannot be recovered if the assessee has already inhabited the dwelling property in whole or in part.
Pre-construction or pre-period interest (PPI) is the interest you pay on a home loan while it is under construction. Note that you can claim a deduction on interest paid on the home loan during the pre-construction period, but not until the construction is completed.
This deduction is as per Section 24 of the Income Tax Act of 1961. You can calculate deduction on pre-period interest on your home loan using these simple steps:
Step 1: Identify the date of home loan issuance and the financial year, preceding the date of completion of the home’s construction
Step 2: Calculate the difference in months between the two dates to get the pre-construction period
Step 3: Compute the total interest paid for servicing your home loan to get the pre-period interest (PPI)
Step 4: Divide PPI by 5 to get Allowable Prior Period Interest (APPI)
Note that APPI is the amount that can be claimed in 5 equal instalments starting from the financial year when construction was completed. However, the applicable limits as per Section 24 of the IT Act will still apply to pre-period interest.
For instance, one can avail of a maximum deduction of ₹2 Lakhs for self-occupied properties, and this includes APPI and the interest paid on a home loan. However, there is no such upper limit for a ‘let-out property.’
Home loans availed from April 1, 2016, to March 31, 2017, qualify for an additional deduction of ₹50,000 every year on it.
To do so, you must ensure that the home loan value is ₹35 Lakhs or less and the property value is under ₹50 Lakhs.
To avail of this housing loan tax deduction, you must ensure that you were applying for the home loan in your name for the first time during the stipulated period.
In the Union Budget 2020, the Finance Minister introduced a new tax regime, lowering the existing tax brackets. In addition to this, the new tax regime also does away with the numerous home loan tax deductions available in the old tax regime.
However, you need to assess the advantages and drawbacks of old and new tax regimes before you decide to shift from the former to the latter.
Under the new tax regime, taxpayers cannot claim home loan interest deduction under Section 24 for a self-occupied property. By opting for the new regime, you miss availing of home loan tax benefits of up to ₹2 Lakhs.
However, with the new regime, you can still claim housing loan interest deduction on a rented property in the following claims:
The standard housing loan interest deduction is 30% of your net rental income (Net Rental Income= Total Rental Income – Applicable taxes)
You can claim home loan interest deductions under Section 24B after the standard deductions are computed
However, note that opting for the new tax regime is optional, and you can continue with the old tax regime if you want.
The following are some of the factors that you must know about home loan tax deduction calculation:
Assessment Year: The year in which you determine income tax dues
Category: There are four categories like male, female, senior citizen, or super senior citizen. The senior and super senior citizens are included under different tax slabs when compared to individuals below the age of 60 years
Annual Income: Your annual income is a significant factor that determines your tax obligations. Both under old and new tax regimes, an annual income of up to ₹2.5 Lakhs is exempt from taxation
Interest Amount: To calculate your housing loan tax benefits, you need to know the interest amount paid toward the loan servicing
Principal Amount: The loan amount is another significant factor when calculating your house loan deductions under Section 80C
It is straightforward to get tax benefits on a house loan. The processes to claim your tax deduction are outlined here.
Step 1: Determine the amount of the tax deduction to be claimed
Step 2: Check to see if the house is registered in your name or if you are a co-borrower on the loan
Step 3: Give your employer your house loan interest certificate to amend the tax-deductible at the source
Step 4: Fill and submit your IT form, with the appropriate deductions under the headers
In conclusion, you can claim housing loan deductions on your existing home loans under various sections of the Income Tax Act of 1961. However, if you wish to lower the interest rate, you can opt for a Home Loan Balance Transfer.
You can claim tax savings on home loans under different sections of the Income Tax Act of 1961. You can claim deductions of up to ₹50,000 and ₹1.5 Lakhs under Sections 80EE and 80C, respectively.
On the other hand, you can enjoy home loan tax benefits of up to ₹2 Lakhs under Section 24.
If a top-up home loan is used for the acquisition, building, or renovation of a residential property, it is eligible for tax incentives under Sections 80C and 24. You can split the EMI and get income tax benefits on principal and interest under Sections 80C and 24, respectively.
Yes, tax deductions on house loan interest are allowed in 2022-23.
If a person meets the requirements of both Sections 24 and 80EE, they are eligible for benefits under both sections of the act. To commence the same, the person must first exhaust the Section 24 limit before claiming further benefit under Section 80EE.
Tax benefits are available to the property owner. If the spouse is a co-borrower, they are also eligible for tax benefits.
You will not be able to claim tax deductions until the construction is finished. You can claim an aggregate of interest paid for the period prior to gaining possession after it is finished. This can be claimed in five equal instalments beginning with the year the construction is finished.
Yes, in case the partner is employed with a different source of income, you can claim separate deductions on your tax forms. You both can deduct up to ₹1.5 Lakhs from your total income under Section 80C.
If the house is jointly owned, each co-owner can claim interest on borrowed money deductions of up to ₹2 Lakhs.
An individual can claim a tax deduction of up to ₹2,00,000 for interest payments on a house loan under Section 24 of the Income Tax Act.
Yes, you can avail of a second home loan and claim tax benefits on it.
If you sell your residential property within 5 years, the deductions availed by you will be reversed. Alternatively, it will be considered as income for the years when the income tax is due.