Want to Enjoy Home Loan Tax Benefits? Consider these points
Want to Enjoy Home Loan Tax Benefits? Consider these points
As per the provisions of the Income Tax Act, 1961, home loan borrowers can claim deductions on both the principal and interest component of their borrowed sum.

To encourage individuals to become homeowners, the Government of India has launched several credit-linked housing schemes and subsidy programs. The government has also extended multiple tax benefits to housing loan borrowers to incentivize borrowing and repayment activities. 

  • In the 2021 Union Budget, the Government of India extended the additional tax deduction scheme on the total interest paid on home loan availed to purchase affordable housing until March 2022.
  • Also, accommodative stances like RBI's Monetary Policy 2021 of keeping the repo rate unchanged at 4% has given momentum to borrowing activities in the market. 

Regardless, to maximize the benefits of repo rate cuts and to claim the applicable home loan tax benefits, individuals should find out about the deductions and how they can benefit from them. 

Tax benefits on housing loans

As per the provisions of the Income Tax Act, 1961, home loan borrowers can claim deductions on both the principal and interest component of their borrowed sum. 

These pointers below provide insight into the different home loan tax benefits available under ITA.

  • Deduction under Section 80C

Under this tax provision, home loan borrowers can claim benefits under Sec 80C if the sanctioned amount was used to construct or purchase housing property. The provision allows taxpayers to claim a maximum of Rs.1.5 lakh as a deduction on paid principal loan amount in a fiscal year. Note that such benefits can be claimed on self-occupied, rented, and soon-to-be rented housing properties. 

Conditions for claim: To claim benefits under Sec 80C, the property in question must be completed within 5 years. The property must not be sold before 5 years of possession. Intending borrowers can maximize their tax rebate by applying for a joint home loan with the property's co-owner. Each of the co-borrowers is entitled to claim up to Rs.1.5 lakh under this Section.

  • Deductions under Section 24 (b)

Under this provision, borrowers can claim tax deductions of up to Rs.2 lakh on the home loan interest paid in a year. Such benefits are extended to self-occupied residential properties. Note that tax deductions under this provision are extended on an accrual basis. In other words, interest is computed for each year separately, and borrowers can claim a rebate without actually paying anything.

Conditions for claim: To avail this tax benefit, the house in question must be constructed within 5 years; failing to do so will only allow individuals to claim up to Rs.30,000. Note that deductions can be claimed from the year the construction is completed.

  • Deductions under Sec 80EE

First-time home buyers are entitled to claim tax benefits under this provision. This benefit is applicable to those who have availed the loan in FY 2016-2017, and it allows borrowers to claim up to Rs.50,000 as a rebate. The deductions under this Section are available until the borrowed sum of money is repaid. 

Conditions for claim: The property value should not be over Rs.50 lakh, while the loan value should not exceed Rs.35 lakh. Note that borrowers can claim this rebate only after they have exhausted the waiver extended under Sec 24(b).

  • Deductions under Sec 80EEA

First-time homebuyers can claim the benefit available under this Section for a purchased property that comes under the affordable housing category.  Under this Section, borrowers can claim an additional deduction of up to Rs.1.5 lakh in a fiscal year and the same is extended up to March 2022.  The benefits under this tax provision are extended over and above the ones extended under Sec 80C and 24(b).

Conditions to claim: The residential property value should not be over Rs.45 lakh, and only those who have not claimed benefits under Sec 80EE can enjoy benefits under this provision.

Before figuring out the steps involved in claiming tax benefits on home loans, borrowers should identify the home loan tax benefit applicable to them. Subsequently, they should find out the requirements accordingly. 

Besides saving on taxes, intending borrowers can lower their overall home loan repayment by choosing a lending institution that extends a high amount at competitive rates that make home loan EMI manageable.

Typically, leading financial institutions offer credits at the best home loan interest rates and are quite transparent about levying additional charges.

They also provide borrowers with pre-approved offers that simplify the overall experience of applying and repaying loans. Generally, such lucrative offers can be availed on financial products like home loans and loans against property. Check your pre-approved offer now in a few steps by entering details like name and contact number. 

To compute the tax burden accurately, borrowers may use an income tax calculator. It will help to ascertain which home loan tax benefits apply to them. Once everything is in order, they should make it a point to check out the tax filing and claim process to streamline the entire borrowing experience.