Tax Benefits Of Home Loan - Home Loan Blog - Tata Capital

Tax Benefits you can Enjoy on Housing Loans

Mar 09, 2017

A loan not only enables individuals to acquire their dream homes but also provides several tax benefits. The multiple benefits are advantageous in reducing the tax liability of the users. Furthermore, these help individuals plan their cash flows in a more efficient manner.

Here are five tax benefits available on the housing loans

1. Interest deductions

Servicing the loan is done through an equated monthly installment (EMI). The EMI comprises principal repayment and the interest. The interest component in the installment may be claimed for tax benefits. This deduction commences in the year during which the construction of the house is complete. The maximum amount that is allowed for tax deduction is INR 2 lakh per annum for self-occupied property. If the house is rented out, the entire interest paid on the home loan is tax deductible. The individual must be the owner of the home and must also be an applicant on the loan to enjoy this tax benefit.

2. Deduction on principal repayment

The amount that comprises the principal repayment in the EMI enjoys benefits under section 80C of the Income Tax (IT) Act, 1961. The maximum amount of this deduction is capped at INR 1.5 lakh per year.

3. Deduction on registration and stamp duty

Section 80C of the IT Act also provides tax deductions on the registration charges and stamp duty paid at the time of purchasing the home. This is a one-time benefit available only in the year when these amounts are paid.

4. Pre-construction interest deductions

As discussed above, the interest deductions commence from the year in which the construction is completed. However, borrowers are also allowed to claim a deduction on the pre-construction interest in the same year. The entire pre-construction interest amount is deductible over five years in equal installments. An important point that users must remember while claiming such deduction is that the maximum amount cannot exceed INR 2 lakh for self-occupied homes.

5. Deductions under section 80EE

This section 80EE of the IT Act provides benefits for first-time homebuyers where the property value does not exceed INR 40 lakh and the house loan is less than INR 15 lakh. Furthermore, this deduction is available only for loans that have been sanctioned between April 1, 2013, and March 31, 2014. The maximum deduction available under section 80EE was capped at INR 2 lakh, which was allowed over a two-year period. However, this section lapsed in the financial year 2015-16 and is no longer available for borrowers.

Home Loan is offered by leading financial institutions across the country. There are several advantages of availing of these loans. Moreover, the authorities allow tax benefits for borrowers, which reduce their tax burdens and results in significant savings.