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Income Tax Benefit On Home Loan

Published On Dec/14/2023

The decision to purchase a home is often considered to be a significant milestone for families as well as individuals. The importance of promoting homeownership as a means of fostering economic growth and stability is recognised by the government. As a result, many countries offer income tax benefits on home loans to encourage citizens to invest in real estate.

These home loan benefits in income tax are specially designed to reduce the total cost involved in the ownership of the home as well as alleviate the loan repayment burden. This article will focus on home loan tax benefit and explore the various sections of ITA, that allow income tax rebate on home loan.

Also Read: Benefits of Taking a Home Loan

Read until the end to secure a vast knowledge about home loan interest deduction and tax benefits.

Sections of the Income Tax Act for Tax Rebates On Home Loan

The table below highlights all the sections of the Income Tax Act that allows for tax rebates on home loan:

Section Of Income tax Act
Nature Of Deduction On Tax
Maximum Deduction In INR
Section 80C
Deduction of tax on principal repayment
Up to Rs.1,50,000
Section 26, along with Section 24
Home loan tax deductions for co-owners
Up to Rs.2,00,000 for each co-owner, respectively.
Section 24B
Interest payment tax deduction
Up to Rs.2,00,000

Types of Deductions on Housing Loans

Income tax deduction some home loans offer significant tax benefits, which include:

  • Deduction of interest paid on home loan

  • Tax deduction on the principal amount repaid on a home loan

  • Deduction of the charges concerning stamp duty and registration

  • Tax deduction for individuals who are purchasing a home for the first time

  • Tax deduction on joint home loan

Some Other Conditions That You Must Note:

The availability of home loan tax benefits is often subject to the fulfilment of certain conditions by taxpayers for securing the advantage. Some of the most common conditions that taxpayers must be aware of for tax deductions on home loans are listed below:

  • Type of property opted for

  • Time required for completion of the construction

  • The taxpayer must be the legal owner of the property to claim deductions.

  • A minimum period of occupancy as per the Income Tax Act.

  • Period of repayment

  • Purpose of the loan

Deduction Of Tax On Home Loan Interest Paid Under Section 24B

Deduction concerning the paid interest on a home loan can be availed by individuals under section 24B of the ITA. In the case of a house that is self-occupied, the maximum deduction that can be climbed from the annual gross income is up to Rs 2 Lakh. However, this can be applicable only if the acquisition or property’s construction is completed within five years.

Moreover, it must also be noted that if the purpose of the house is self-occupancy, the loan should be opted for only construction or acquisition purposes and not for reconstruction, renewal or repair.

If the total time for construction of the house exceeds five years, you are eligible to claim deductions for the home loan interest for repair, reconstruction or renewal, up to Rs 30,000 per year.

If you intend to rent your property, the total amount of paid interest on a home loan purchase, renewal, reconstruction, or repair, you can claim it as a deduction, along with there’s no mention of any stipulated time by which the completion of the property’s construction must be done.

Tax Deduction On The Repayment of Principal According To Section 80E Of ITA

As per section 80C of the Income Tax Act, a tax reduction of up to Rs. 1,50,000 may be availed by individuals for the concerned financial year on the portion of the EMI that concerns the repayment of principal.

However, the availability of the deduction can only be secured on the completion of the residential property. It is also essential to remember that if the property is sold within a span of five years, dating from the end of the particular financial year in which the property was purchased, the benefit will not be applicable or may be reversed.

Tax Deduction for First-Time Buyers

First-time buyers can claim tax deductions up to Rs. 50,000 annually, as per ITA section 80EE, on the payment of the home loan's interest. This offer is only for buyers purchasing a home for the first time.

In order to claim this deduction, the individual needs to meet the following conditions:

  • The loan amount must be under Rs 35 Lakh, where the property’s value must not exceed Rs 50 Lakh.

  • The loan sanction should be done between April 1, 2016 to March 31, 2017.

  • The homeowner must not own any other house as of that particular date.

  • Section 80EE is only valid for loans sanctioned until March 31, 2017.

  • The deduction is applicable over the Rs 2 Lakh provided under Section 24 of ITA.

Tax Deduction On Charges Concerning Registration And Stamp Duty Under Section 80C

According to section 80C of ITA, one can claim tax deductions for registration and stamp duty fees within the limit of Rs. 1,50,000, appalled to the repayment of the principal. However, you can secure the benefit regardless of whether you opt for a home loan. The availability of the benefit is restricted to the specific year that includes these expenses.

Deduction Of Tax On The Paid Interest For A Property Under Construction

If you purchase a property that is under construction and make the payment of installments, you are eligible to claim interest on the housing loan as a deduction on completion of your construction. The ITA allows individuals the claim of a tax deduction for both post-construction and pre-construction interest.

The allowance of pre-construction interest is made on the basis of deduction, which is divided into five equal instalments per year starting from the particular year when the property’s construction was started.

Joint Home Loan Tax Deduction:

In the case of a joint home loan, each borrower involved in the loan can claim a deduction no of tax on the home loan's interest up to Rs 2 Lakh according to Section 24(b). However, the tax deduction on principal repayment is allowed up to Rs 1.5 Lakh as per section 80C of ITA.

Therefore the available deduction amount is doubled as compared to a single-applicant home loan. The essential point that must be considered is that both applicants must be the property’s joint owners and must bear the EMIs.

Additional Tax Deduction As Per Section 80EEA

With the aim of promoting the housing sector, an additional deduction has been introduced under section 80EEA, which makes provision for tax benefits up to Rs 1.5 lakh considering the following conditions are met:

  • The property’s stamp value must remain within 45 Lakhs.

  • The sanction of the loan must be done between April 1, 2019, to March 31, 2022.

  • The individual must not entertain the ownership of any other properties, representing that this deduction only applies to first-time buyers.

  • The individual will no longer be eligible for deduction of a claim under section 80EE if a deduction claim under this section is considered.

Conclusion:

To conclude, tax deductions and benefits on home loans serve as a powerful tool in encouraging individuals to secure the ownership of their homes and ease the financial burden on families and individuals. Although offering a pathway for significant savings for home wonders, these tax incentives also play an essential role in enhancing the real estate sector and promoting economic growth.

However, the buyers are required to be well-informed about the particular terms and conditions and the changing tax regulations to ensure financial stability in the long run. Compliance with all these conditions and ensuring the maintenance of proper documentation helps homeowners rightfully claim the tax benefits they are lawfully entitled to without disregarding the tax laws.

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