Understanding Home Loan Tax Benefits: How to Maximise Savings
A home loan not only helps you purchase a property, but also provides opportunities to save on taxes. If you are servicing a housing loan, you may be eligible for various deductions under the Income Tax Act, 1961. These benefits reduce your taxable income and maximise savings.
This article explores key deductions available under Sections 24(b), 80C, 80EE, and 80EEA.
Deductions on Interest Paid – Section 24(b)
Under Section 24(b), you can claim deductions on the interest paid on a home loan. For a self-occupied property, you can claim a deduction of up to Rs. 2 Lakh per annum.
However, note that the deduction is applicable only if the construction or purchase of the property is completed within five years from the end of the financial year in which the loan was taken.
Deductions on Principal Repayment – Section 80C
Under Section 80C, you can claim a deduction of up to Rs.1.5 Lakh per annum on the principal amount repaid during the financial year. This includes:
● The amount repaid towards the housing loan principal
● Stamp duty and registration charges (Note: These charges can be claimed only in the financial year they were incurred.)
The following conditions need to be met to claim deductions:
● The deduction is available only after the completion of the property and issuance of the completion certificate.
● The property must not be sold within five years of possession, or the deduction claimed will be reversed in the year of sale.
This Section also allows deductions on other investments such as Provident Fund, ELSS, and life insurance premiums.
Additional Deductions for First-Time Buyers – Section 80EE
To support first-time homebuyers, Section 80EE allows an additional deduction of up to Rs.50,000 per annum on home loan interest payments. This is over and above the Rs. 2 Lakh limit under Section 24(b). The conditions to be met are:
● The loan must be sanctioned between 1 April 2016 and 31 March 2017.
● The loan amount should not exceed Rs. 35 Lakh, and the property value should not be more than Rs. 50 Lakh.
● The applicant should not own any other residential property on the date of loan sanction.
Additional Deduction for Affordable Housing – Section 80EEA
Section 80EEA incentivises affordable housing. You can claim an additional deduction of up to Rs. 1.5 Lakh on home loan interest if:
● The loan is sanctioned between 1 April 2019 and 31 March 2022.
● The stamp duty value of the property does not exceed Rs. 45 Lakh.
● You do not own any other residential property at the time of loan sanction.
Note that if you opt for this deduction, you cannot claim benefits under Section 80EE.
Understanding home loan tax benefits is key to maximising savings. Sections 24(b), 80C, 80EE, and 80EEA offer valuable deductions on interest and principal repayments. Consider using an income tax calculator to estimate potential savings before and after availing of a housing loan.
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