4 Income Tax benefits on home loan that you need to know about

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Vikas Sharmahttp://taxclue.in
A writer by passion. Reading and traveling in my free time enhances my creativity in work. I enjoy exploring my creative side, and so I keep myself engaged in learning new skills.

Owing to a House or planning to buy?

Paying income tax but don’t know how to plan for this. then this is the right time and source for you to plan your income to save income tax by wisely invest your hard-earned money in generating wealth or Capital Assets for you. 😀 

Hey in this article, I am going to tell you a few things, using you can invest your money in the right place and save income tax. 

Let’s start! 💡 

In the budget 2020, FM had announced few additional tax benefits which are applicable for the FY 2020-21.   If, you have an on-going home loan or have taken a home loan recently, then there are certain income tax benefits you can avail of on the EMIs paid. 

Do remember that for the current financial year, an individual can continue to opt for the old tax regime and claim tax exemptions such as HRA and various deductions under sections 80C, 80D, etc. 

Have a look at all the tax benefits that an individual can get on home loan EMI payments if he/she has opted for the old tax regime.

Deduction on repayment of the principal amount of home loan

The EMI paid by you has two components – principal repayment and interest paid.

The amount repaid as a principal component in the EMI can be claimed as a deduction under section 80C of the Income-tax Act, 1961 for self-occupied property.

Do remember if you have a second home that is empty or your parents are living in that house, then that second house will also be considered a self-occupied house.

"If you have a home loan going with both the houses, then you are eligible for deduction on the principal amount repaid on both the home loans for a maximum up to Rs 1.5 lakh."

If you have given your second house on rent, then it will be called ‘Let out a property.

"Kindly note that you can claim deduction section 80C in case of let-out a property as well"

Section 80C deduction can also be claimed for the stamp duty and registration charges paid at the time of buying a house.

Deduction on Interest paid on a Home Loan

Apart from the deduction on the principal amount repaid on a home loan, a taxpayer can also claim a deduction on the interest paid on the home loan.

Deduction on the interest paid on a home loan is available under section 24 for a maximum of up to Rs 2 lakh in a given financial year in the case of self-occupied property.

Amount of interest payment exceeding Rs 2 lakh will neither be carried forward nor be adjusted against any other income head such as capital gains, salary, etc. in case of self-occupied property.

If you have two houses and your second house is empty or occupied by your parents, then the interest paid on the home loan taken for the second house will also be covered under section 24.
"Do keep in mind that the total deduction available on the interest paid on the home loan for both the houses should not exceed Rs 2 lakh in a financial year."
In the case of Let out a property, there is no limit on the maximum interest that can be claimed. However, the loss that will be adjusted against other income heads such as salary, etc. cannot exceed Rs 2 lakh in a financial year.
The remaining loss under the head ‘Income from house property can be carried forward for 8 successive years to be adjusted against the income from house property only.”

Extra deduction on buying an affordable house

If you have bought a house under the affordable housing category, then an additional deduction is available on the interest paid on the home loan taken for buying that house.
This deduction can be claimed under section 80EEA for a maximum of Rs 1.5 lakh in a financial year. It is available over and above the deduction under section 24 for a maximum of Rs 2 lakh.
Thus, a taxpayer is able to claim a deduction of up to Rs 3.5 lakh in a financial year in case of buying an affordable house.
Kindly note that the same amount cannot be claimed twice under two different sections.
For example, if you have an interest paid amount of Rs 1.5 lakh in the financial year on a home loan, then the deduction can be claimed either under section 24 or in section 80EEA.

To claim this, there are certain conditions that must be satisfied which are as follows:

  • Housing loan must be taken from a financial institution such as a bank or housing finance company for buying a residential house property;
  • The home loan must be taken between April 1, 2019, and March 31, 2021;
  • The stamp value duty of the house property should not exceed Rs 45 lakh;
  • The taxpayer should not own any residential property as on the date of sanction of the loan; and
  • The individual taxpayer should not be eligible to claim deduction under the existing section 80EE 
Budget 2021 has proposed to extend the timeline for availing the home loan by another year for claiming an additional deduction on interest payments on home loan to March 31, 2022, from the current deadline of March 31, 2021.

Deduction under section 80EE

This deduction was reintroduced in FY 2016-17 for first-time home buyers availing home loans. Taxpayers who have taken a home loan in FY 2016-17 were allowed to claim an additional tax deduction of up to Rs 50,000 under Section 80EE.
Currently, a home loan borrower paying interest on the loan can claim a deduction of interest so paid from his/her gross total income up to a maximum of Rs 2 lakh per annum under Section 24. The deduction of Rs 50,000 introduced in Budget 2016 is over and above this limit of Rs 2 lakh.
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To claim this deduction, certain conditions are required to be met which are as follows:
  • The additional deduction with respect to interest on loan taken will be applicable only for residential house property.
  • It’s only for first-time home buyers.
  • The maximum additional benefit is capped at Rs 50,000 a year.
  • The value of the house for which the loan is taken cannot exceed Rs 50 lakh.
  • The loan amount cannot exceed Rs 35 lakh.
  • The loan has to be sanctioned between April 1, 2016, and March 31, 2017.
Although this tax benefit is not available for new home loans taken after April 1, 2017, however, if you have already availed a home loan in FY 2016-17, then you can claim this deduction until you have fully repaid the loan.

So, all home loan-related deductions put together can help you get a maximum deduction of Rs 5 lakh (Rs 2 lakh u/s 24, Rs 1.5 lakh u/s 80C, and Rs 1.5 lakh u./s 80EEA) if it meets the specified conditions.

If you are planning to buy a new house you can plan your purchase in such a way that your loan helps you get a maximum deduction.
Vikas Sharma

A writer by passion. Reading and traveling in my free time enhances my creativity in work. I enjoy exploring my creative side, and so I keep myself engaged in learning new skills.

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