Low-interest rates, high loan sanctions, and long repayment tenors are three of the key factors that make home loans a viable financing option in India. With home loan tax exemptions, homebuyers can significantly reduce their tax liability in any given year.
Individuals repaying a home loan can claim home loan tax exemption on both the principal and interest components of their home loans. In this article, we focus on home loan interest deductions.
Home Loan Interest Deduction Under Section 24b of the Income Tax Act
Under Section 24b of the Income Tax Act home loan borrowers can claim tax exemption on the interest component of their home loan. Hence, borrowers currently repaying a home loan can claim tax benefits up to a maximum of Rs.2 Lakh under this section.
The maximum rebate limit permissible remains the same. However, this limit exists only for residential properties that are inhabited by the borrower. For rented-out properties, there is no upper limit on how much one can claim a home loan interest deduction.
In this case, one can even claim the entire amount paid towards the repayment of the interest component of one’s home loan during a given financial year.
Home Loan Interest Deduction on Pre-Construction Interest
These days, most homebuyers opt for under-construction properties. They do so primarily for two reasons. First, under-construction properties are available at a discounted price.
Borrowers can easily save a good amount by opting for an under-construction villa or flat. Further, under-construction properties often help borrowers enjoy a better return on investment.
If you have invested in an under-construction property, it is important that you make yourself aware of the tax savings on home loans through pre-construction interest. Home loan borrowers can claim tax benefits on the interest paid during the construction phase in 5 equal instalments spread over 5 years after the construction on the property is complete.
If the construction on the property takes more than 5 years, the maximum limit permissible automatically reduces to Rs.30,000 a year. Thus, if you wish to maximise the home loan tax benefits you are eligible for, make sure that the possession time of the property you have invested in is less than 5 years.
Home Loan Interest Deduction on Joint Home Loans
In joint home loans, the responsibility of loan repayment falls on two individuals. In this case, all individuals repaying the loan can claim home loan tax benefits separately under Section 24b of the Income Tax Act.
Thus, a couple who has availed themselves of a home loan together can maximise benefits by claiming interest deduction separately under Section 24b of the Income Tax Act. However, before you decide to avail yourself of a joint home loan, talk to your lender and get clarity on who can be a co-borrower with you on your home loan application.
Home Loan Interest Deductions Under Section 80EE and Section 80EEA
First-time homebuyers can increase the home loan tax exemption they are eligible for by claiming home loan benefits under Section 80EE or Section 80EEA.
The maximum limit permissible under Section 80EE is Rs. 50,000 and the maximum home loan interest deduction that one can claim under Section 80EEA is Rs.1.5 Lakh.
However, do keep in mind that borrowers can claim tax benefits under either of the two sections. It is not possible to claim home loan tax benefits under both sections. Further, one can claim home loan tax exemptions under these sections only if one meets all the home loan eligibility criteria.
Final Words
Home loan benefits can help you reduce your tax deduction by a significant margin. Other than claiming home loan interest deduction on the interest component of your loan under the various sections specified above, borrowers can also claim home loan tax benefits on the payments they have made towards the principal component repayment of their home loan under Section 80C.
Thus, those repaying a home loan or planning to apply for one should get a clear understanding of how they can make tax savings on home loans and how to maximise these savings.