Owning a house is everyone's dream. To encourage citizens to invest in real estate, the government provides various tax benefits for home loans under the Income Tax Act of 1961 (the “Income Tax Act”). It's important to be aware of all the tax benefits of home loans, as they can save you a significant amount of your tax payments. Home loans interest rates consist of principal and interest payments. Tax benefits may be claimed in either category under Section 80C or Section 24(b) of the Income Tax Act.
Tax deduction on interest paid
Section 24(b) allows you to claim a deduction from your gross income on interest paid on your home loan. For owner-occupied houses, you can claim reduced interest up to Rs 2 lakh. This is the case if your property is rented. However, the 80°C reduction does not apply to commercial properties. You can claim this deduction on an accrual basis, e.g., claim deductions annually, even if you didn't pay the amount of interest this year but paid more in the previous year. You can carry forward losses on property that you don't use. Commercial activities can be transferred for 8 years.
Section 80C Tax Benefit Capital Reduction for Home Loans
Section 80C deals with staple deductions:
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For owner-occupied and leased properties, you can claim up to a maximum of Rs.1.5 lakh annually of taxable income on the return of capital.
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This may include stamp duty and registration fees. However, it can only be requested once.
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To claim it, you must first complete the lot construction.
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You must not sell your home within 5 years of ownership to claim this deduction.
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If you sell your home within 5 years of ownership, any claimed deductions will be refunded in the year you sold it. This amount is also added to your revenue for the year of sales.
Additional deductions from home loan interest for affordable housing under Section 80 of the EEA
Section 80 of the EEA was introduced in the 2019 Union budget to increase the affordable housing segment. Under this provision, first-time homebuyers can claim a tax deduction of up to Rs. 1.5 lakhs for affordable home loan interest. To receive compensation, the following conditions must be met:
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Home loans must be taken between April 1, 2019, and March 31, 2020.
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The value of the house stamp tax should not exceed Rs. 45 lakhs
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When the loan is approved, you are not allowed to own your own house
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You should not be entitled to any deductions under Section 80EE of the Income Tax Act
