Learn About Income Tax Benefits Available on Home Loans
The average cost of a property in Tier I city can range anywhere between Rs. 20,000 to Rs. 30,000 per sq. ft. For Tier-II cities, the price is around Rs. 10,000 per sq. ft.
Buying a moderate-sized unit that accommodates a small family can come with a substantial price tag based on the above prices. Hence, opting for home loans is the only solution to such purchases. However, repaying the loan can become a difficult financial obligation for some.
To reduce this debt burden, the government offers home loan tax benefits under the Income Tax Act, 1961.
This Act provides tax exemptions under the following sections:
- Section 24(b)
- Section 80C
- Section 80EEA
The nuances of these sections are discussed in detail below.
- Section 24(b) – This section mainly deals with deductions on interest payment. However, the home loan tax benefits and its preconditions, as stated under Section 24(b) in the Income Tax Act are:
- A deduction up to Rs. 2 Lakh is permissible if the house on which a loan is availed is self-occupied. This deduction is provided only on interest payments.
- If a property is let out, the beneficiary is entitled to avail the whole amount of interest paid as a deduction from taxable income.
- If a loan is availed for an under-construction property, the benefit of Rs. 2 Lakh on interest payments can only be availed if the construction work is completed within the next five years. In case construction work takes more than five years to finish up, the maximum permissible deduction on interest payments is limited to Rs. 30,000 only.
- In the case of a co-borrower, both the beneficiaries are allowed to avail exemptions up to the extent of interest payment on a loan.
- Section 80EEA – This is a new inclusion into the Income Tax Act, announced in the 2019 Budget.
- This section states that beneficiaries of affordable home loans are eligible for an additional claim of Rs. 1.5 Lakh on interest payment over and above the deduction of Rs. 2 Lakh allowed under section 24.
- This is available only for individuals and not for any organizational entity.
- Another condition to claim an exemption under this section is that the beneficiary must not own any other house property on the date of sanctioning a loan.
Section 80EEA is only valid on the Pradhan Mantri Awas Yojana for a home loan. Beneficiaries under this scheme can avail subsidies on the home loan rates. The maximum interest subsidy one can claim is 6.50% with the amount ceiling being Rs. 2.67 Lakh.
- Section 80C – This section states the provisions for tax deductions in respect of principal repayment. You can easily calculate the total tax benefit on your loan by using a home loan tax benefit calculator.
- A beneficiary can claim a deduction of up to Rs. 1.5 Lakh on principal repayment of a loan, given the construction work of the house, is completed and it has not been sold or transferred within five years.
- In the case of a co-borrower, both of them are eligible for claiming up to Rs. 1.5 Lakh from their taxable income. This is one of the tax benefits on a joint home loan.
- Stamp duties and registration fees are also deemed deductible expenses under this section. You are entitled to receive tax benefits on the money spent on registration and stamp duty under Section 80C.
Ensure to claim the relevant certificate and documents from your lender for home loans at the right time. These papers will aid to claim the home loan tax benefit more comfortably.
Category: Loans
