Everything to Know About Home Loan Tax Benefit

If you are servicing a home loan, you are eligible for various tax benefits, which can help you reduce your annual tax liability. Read on to know more about the home loan-related tax benefits.

When you apply for a home loan, you not only get funds to purchase your dream home, but you also become eligible to get tax benefits. The home loan tax benefits are covered under various sections of the Indian Income Tax Act. Let us look at the home loan tax benefits and how you can reduce your annual tax liability.

Deduction on the repayment of the home loan interest

The EMI (equated monthly instalment) you repay to the lender includes both the principal amount and the interest component. The interest amount you repay to the lender is eligible for tax benefit under Section 24 of the Indian Income Tax Act. But, you must know that the maximum deduction you can get in a financial year is Rs. 2 lakhs and the benefit is applicable on both self-occupied and rented property.

Deduction on the repayment of the home loan principal amount

As per Section 80 C of the Indian Income Tax Act, the principal amount you repay to the lender is eligible for tax deduction. You can claim a maximum deduction of Rs. 1.5 lakhs in a financial year. But, to claim the benefit, you must meet certain requirements. You must not sell the property for at least five years from the date of registration. If you do not meet this condition, the tax benefit you claimed earlier will be reversed and it will be added to your income and taxed as per your existing tax bracket.

Deduction on stamp duty and registration fees

When you buy a home, you must pay stamp duty and the registration fees; it is a mandatory expense and it is a sizeable amount. The deduction on stamp duty and registration fees is covered under Section 80C and it is within the overall limit of Rs. 1.5 lakhs. Also, you can claim the deduction only once in the year in which you buy the home.

 Deduction on joint home loan

If you wish to apply for a joint home loan with your spouse or any other earning member in your family, both of you are eligible to get tax benefits individually. The maximum deduction you can claim on the interest repayment is Rs. 2 lakhs and on the principal amount you can claim a deduction of Rs. 1.5 lakhs. Thus,

 Additional deduction under Section 80EE

Apart from the tax benefits you get on the repayment of the principal and the interest amount, you can also claim an additional deduction of Rs. 50,000 under Section 80EE. To claim this benefit, you must meet the following requirements:

·         The value of the property that you purchase must not exceed 50 lakhs.

·         The value of your home loan should not be more than 35 lakhs.

·         Your home loan must be sanctioned between April 2016 and March 2017.

·         As on the date of getting home loan approval, you must not own any other property in any part of India.

Deduction under Section 80EEA

In 2019, when the Finance budget was presented, the government of India introduced a new home loan tax benefit under Section 80EEA. Under this section, you can claim a maximum deduction of Rs. 1,50,00 if you meet the below conditions: 

·         If you have claimed deduction under Section 80EE A, you can claim the tax benefits under Section 80EE.

·         The stamp value of the property you buy should not be more than 45 lakhs.

·         Your home loan must be sanctioned between April 2019 and March 2020.

·         As on the date of getting your home loan approval, you must not own any other real estate property in any part of India.

Final Word

When you apply for a home loan, do your due diligence to know about the home loan tax benefits and take advantage of it to reduce your annual tax liability.

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