Majority of Indians aspire to be homeowners. It makes sense too — a home does not only bring one peace of mind, but it also ensures financial security. The real estate has always delivered stellar returns in the long run. Thus, in India, investing in a home is considered a very smart decision as buying a home of one’s own not only helps one save rental cost while also working towards building a high-value asset. Further, home loans come with home loan tax benefits. Borrowers who have availed of a home loan to help them finance their home purchase can claim home loan tax benefits and save money in the form of taxes. The Government of India began offering home loan tax benefits to promote home buying and the statistics prove that the strategy has proved quite successful. Let us now look at home loan tax deduction under Section 24 as well as other sections of the Income Tax Act.
How to Save on Taxes With Home Loan Tax Benefits Available to Indians
Deductions Under Section 24b
Section 24b of the Income Tax Act deals with home loan tax benefits available on the interest component of a home loan. As per this section, home loan borrowers can claim tax deductions up to maximum of Rs.2 Lakh on payments made towards repayment of the interest component of the home loan. If a borrower has availed of two home loans, they can claim tax deductions on payments made towards the interest component repayment of both the home loans. However, the maximum deduction that one can claim under this section is Rs.2 Lakh. Further, one can claim tax benefit on home loan under this section only if the tax payer is an owner/co-owner as well as the borrower/co-borrower. Further, one can claim the upper limit mentioned under this section only if one has availed of a home loan for the purchase, construction or reconstruction of a home and the construction is completed within 5 years of availing of the home loan. If the construction gets delayed, the maximum deduction under Section 24 automatically gets reduced to Rs.30,000.
Deductions Under Section 80EE
Home loan borrowers who had availed of a loan between April 1, 2016 and March 31, 2017 can claim an additional tax benefit of Rs.50,000 provided the borrower had invested in affordable housing and the value of the home bought with the loan money must not have exceeded Rs.50 Lakh at the time of buying the home. Further, only first-time homebuyers or those who had no other homes under their name at the time of availing of the loan can claim home loan tax benefits under this section.
Tax Deductions Under Section 80EEA of the Income Tax Act
Section 80EEA of the Income Tax Act states that borrowers who had availed of a loan between April 1, 2019 and March 31, 2022 can claim an additional home loan tax benefit up to a maximum of Rs.1.5 Lakh provided the loan had been availed of to invest in affordable housing and the home loan borrower had no other home in their name at the time of availing of the loan. Further, one can claim tax benefit under this section only if the stamp value of the home bought with the loan money does not exceed Rs.45 Lakh and the home loan borrower is not eligible to claim tax deduction under Section 80EE of the Income Tax Act.
Home Loan Tax Deductions Under Section 80C
Section 24b, Section 80EE and Section 80EEA all deal with home loan tax benefits on the interest component of the loan. Section 80C of the Income Tax Act, however, deals with tax rebate on the principal component of a home loan. As per Section 80C of the Income Tax Act, one can claim tax benefit up to a maximum of Rs.1.5 Lakh on payments made towards the repayment of the principal component of the home loan. However, if a borrower sells the property within five years of buying it, all the tax deductions they had availed of under Section 80C of the Income Tax Act automatically get reversed.
What is the Maximum Home Loan Tax Benefit that a Home Loan Borrower Can Claim in any Given Financial Year?
A home loan borrower eligible to claim tax deductions under Section 24b, Section 80C and Section 80EEA of the Income Tax Act can claim tax income tax deductions up to a maximum of Rs.5 Lakh in any given financial year. This is the maximum deduction that a home loan makes an individual eligible for. In the case of a home loan availed of by a couple together, all home loan applicants can claim tax deductions separately. Thus, in this case, a couple can claim tax deduction up to a maximum of Rs.7 Lakh under Section 80C and Section 24b. Further, they can claim an additional Rs.1.5 Lakh if they are eligible to claim tax deductions under Section 80EEA of the Income Tax Act. Thus, in this particular case, the maximum tax deduction can be increased to Rs.8.5 Lakh in any financial year. You can also refer to new income tax slab rate for the current financial year.
Borrowers are advised the use of an income tax calculator to understand their tax obligation for the year and then talk to an expert regarding how their home loan can help them reap maximum benefits and save tax.