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.
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
|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.
|Interest payment tax deduction
|Up to Rs.2,00,000
Income tax deduction some home loans offer significant tax benefits, which include:
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:
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.
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.
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:
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.
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.
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.
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:
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.