Real estate can be expensive and way out of budget, especially if you plan to buy a house in metropolitan cities. The prices are skyrocketing, but that is where a Home Loan eases it all for you. A Home Loan is your answer to buying your dream home or can fund your renovation expenses without burdening your finances.
The best part is that you also get certain Home Loan tax benefits that improve the entire deal. What are these house loan tax benefits, and how can you claim them? Here are all your questions answered.
A brief idea on Home Loans
A Home Loan is a financial aid to increase your budget to buy your dream home. However, today, you can also apply for Home Loans to fund your home construction, renovation, and repair costs.
You can get a Home Loan sanctioned by meeting the eligibility criteria like age, monthly income, credit score, etc. Like any other loan, you must pay a monthly EMI and repay the loan within the mentioned tenure.
Advantages of taking a Home Loan
One of the best advantages available is the tax benefit on housing loans. These tax deductions can be claimed on interest and principal amounts of your loan, making it more beneficial for you. Another advantage of a Home Loan is that it provides lower interest rates than other loans and a tenure of up to 30 years.
Home Loans have no prepayment charges, which allows you to lower your burden by paying a certain amount of your loan in advance. In the case of a better Home Loan option where a lender is providing lower interest rates, Home Loans can be transferred from your existing lender without any hassle.
Benefits of a Home Loan in income tax
Home Loans and tax benefits often go hand in hand. You can claim returns on the principal amount of your loan through Section 80C and a return on the interest paid through Section 24b, Section 90EE, and Section 80 EEA. You can also claim your house loan for tax exemption on EMI, stamp duty, and registration under Section 80C of the Income Tax Act.
Deduction available on the payment of interest
Tax exemption under section 24
The maximum exemption on home loan interest is up to Rs. 2 lakh per year for purchasing or constructing a house from scratch under Section 24 of the Income Tax Act.
Tax exemption under Section 80EE
You can use your Home Loan for a tax exemption of Rs. 50,000 under Section 80EE if your loan amount is under Rs. 35 lakh and the property value is under Rs. 50 lakh. This benefit is only available to individual borrowers who are first-time home buyers.
Tax exemption under Section 80 EEA
Another tax deduction that first-time home buyers can avail of on interest is under Section 80 EEA. You can claim a tax deduction of up to Rs. 1.5 lakh if the stamp value of your property is Rs. 45 lakh or less. The loan must have been sanctioned between April 1, 2019, and March 31, 2020. The assessee should not claim any deductions under section 80EE to avail tax deductions under section 80 EEA.
Claiming the tax benefits on a Home Loan
All you need to do to avail the benefits of a housing loan in income tax is get your ownership documents, bank certificate, and details regarding the loan, interests, principal, and tax receipts. If you are a salaried employee, you can adjust the TDS by submitting these documents to your employer. If it’s a rented house, calculate the annual income generated from the property. Lastly, file your ITR and claim your deductions.
Tax benefit of interest on a Home Loan under Section 24
According to Section 24 of the Income Tax Act, a Home Loan taken to buy a self-occupied house or to construct a house is eligible for a tax benefit for Home Loan interest of up to Rs. 2 lakh. This tax deduction is claimed on the interest paid on the EMI of the Home Loan. To avail of this benefit, the construction of your property must be completed within five years. But what if it takes longer than five years? You can still claim deductions, but the amount is limited to Rs. 30,000, and you can use your Home Loan benefit for income tax deductions.
Tax benefit of interest on a Home Loan during the pre-construction period
You can claim the benefits of a housing loan in income tax even while your dream home is being constructed by claiming the pre-construction interest. This deduction is spread over five years, starting when you acquire the property or complete construction. This is an addition to any other deductions you can claim from your house property income. However, this deduction comes with a maximum limit of Rs. 2 lakh. To make the deal better for you, if your home loan meets the criteria for deduction under Section 80 EEA, you can claim an extra deduction of Rs. 1.5 lakh as well.
Also Read: Top 6 factors for selecting the right Home Loan
FAQs
Who can claim tax deductions on Home Loans?
Only property owners are eligible for the benefits of housing loans in income tax. If it is a jointly owned house, both borrowers can claim a deduction according to their ownership ratio.
How much tax benefit do I get on a Home Loan?
A self-occupied home is eligible for tax deductions up to Rs. 2 lakh under Section 24(b) and up to Rs. 1.5 lakh under Section 80C of the Income Tax Act.
Do second Home Loans have any tax benefits?
If the first home is self-occupied and the second one is vacant, you can claim tax deductions on the interest paid up to Rs. 2 lakh for both houses. If the first home is self-occupied and the second is rented, you can claim a 30% deduction on interest and the municipal taxes paid. However, you must declare your rental income for these tax benefits.
What is the maximum limit for tax deductions on a Home Loan?
The maximum tax benefit for Home Loan interest for a self-occupied property is Rs. 2 lakh, while a let-out property does not have a maximum limit.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
