Having a house is the dream of every individual. But it is more than the fulfilment of dreams. As per the Income Tax Act of 1961 (“the Income Tax Act”), the Government offers different tax benefits to uplift citizens to invest in property. Therefore, an individual can save a notable amount of money on their tax remittances by being aware of all the home loan tax benefits.

There are both principal remittances and interest settlements associated with home loans. Income Tax Act Section 80C and Section 24(b) allow exemption from tax under both of these categories.

Income tax benefit on home loans: Available Tax exemptions on home debts are as follows

Income Tax Act SectionType of Tax BenefitMaximum Deduction
Section 80CTax benefit amount on the settlement amount of the principal moneyUp to Rs. 1,50,000
Section 24bHome loan interest can be deducted from tax returns if the house is constructed or acquired within 5 years of the remittance of the interest.Up to Rs. 2,00,000
Section 80EEIn the situation of the first residential house property (loan must be authorized between 1-4-2016 and 31-3-2017), additional deductions are allowed (loan amount must not go above Rs. 35 lakhs, plus the amount of the house not exceeding Rs. 50 lakhs.Up to Rs. 50,000
For Joint Home LoansEvery person can claim tax benefits on home loan interest up to Rs. 2 lakh under Section 24(b) and on principal remittances up to Rs. 1.5 lakh under Section 80C if a home loan is taken combined.Up to Rs. 2,00,000 u/s 24b Up to Rs. 150000 u/s 80c
Section 80CFees for stamp duty, as well as registration fees, are deductibleUp to Rs. 150000

Here is a detailed explanation of each benefit and 8 ways one can avail of them:-

1. Home loan tax exemptions on payment of a principal amount under Section 80C

A limit of Rs 1.5 lakh can be deducted from the borrower’s taxable earnings each year for principal payments.

  • Neither self-occupied nor rented properties are exempted from this tax.
  • In addition, stamp duty along with registration charges are inclusive. Therefore, the maximum number of claims per person is one.
  • A claim is only available once the real estate has been entirely constructed.
  • This benefit can’t be availed in the first five years after one moves into a new home.
  • An exemption claimed within 5 years of taking possession of a home will be overturned in the same year as of sale. Furthermore, the proceeds from the sale of the house will be encompassed in their earnings.

2. Home loan tax benefits on settlement of interest under Section 24

The money of interest given on a home debt also qualifies for exemption on tax.

  • As per section 24(b) of the Income Tax Act, debtors can avail of an exemption for the interest they pay on their home debt. In the scenario where one has occupied their house, they can deduct up to Rs. 2 lakh from their gross earnings every year as a tax exemption.
  • An individual who owns two homes cannot deduct more than Rs. 2 lakh in home loans in one financial year.
  • If an individual rents out the house, they are entitled to claim an unlimited amount of interest. A tax exemption can be availed if they have rented out their home for sale, building cost, repair, renewal or home extension.
  • In any case, the maximum loss an individual can get under the earnings from the Property Act is Rs 2 lakh.
  • It is possible to carry forward the leftover loss from the house for eight years to adjust the earnings from the house.

3. Tax benefit on interest remitted if the house is being constructed

When an individual’s home is constructed, they can avail of interest on their housing finance loan as an exemption.

  • Before-construction period interest and after-construction period interest can both be deducted under the Income Tax Act of 1961.
  • From the year in which construction is done, interest for the time before the construction period is allowed as an exemption in five equal annual instalments.
  • Section 24(b) allows a taxpayer to deduct 1/5 of the interest earned during the before-construction period plus interest earned during the after-construction period.

4. House loan tax exemption under Section 80EE

First-time buyers are eligible for income tax exemptions on interest amount applied on the home debts if they meet the following conditions:

  • Only if the total amount of the debt taken is up to 35 lakhs and the property cost is below Rs. 50 lakh, will this exemption be available.
  • To be eligible for the loan, the application must be submitted from April 1 2016 to March 31 2017.
  • It would be feasible to take benefits of this deduction as long as the loan remittance continues.
  • Exemptions under this program will be available beginning with FY2016-17.

5. Housing loan tax benefit under section 80EEA – Interest on Home Loan (First Time Buyers)

An exemption of up to Rs 1.5 lakh is also available for interest paid on their house loan. However, taking advantage of the Section 80EEA house loan tax benefit requires an individual to meet the following criteria:

  • Financial institutions or home finance companies offer loans to people who want to buy residential properties.
  • Loan approval should take place between April 1 and March 31, 2022.
  • A home property should not have a stamp duty value exceeding Rs. 45 lakhs.
  • The existing Section 80EE must not be available to individual taxpayers.
  • To qualify for this tax credit, an individual must be a foremost homeowner. In addition, an individual doesn’t need to possess any residential real estate at the time the debt is accredited.
  • Both spouses can avail of the tax exemption if they possess a house and make debt remittances.
  • Both residents and non-residents can use Section 80EEA.
  • There is no explicit statement according to the section that a residential house must be self-inhabited for the exemption to apply. Therefore, some exemptions can still be availed, although no possession is available.

6. Tax saving on home loans under 24 and section 80C – co-owned house debts on interest amount and principal payment

Section 24(b) allows each borrower to deduct up to Rs 2 lakh from their home debt interest remittance, and Section 80C allows them to deduct up to Rs 1.5 lakh from their principal remitted when taking out a combined owned house debt.

  • When weighed up to a home debt taken by a single individual, this doubles the number of exemptions.
  • To qualify, both applicants must finish their EMI remittance and be joint owners of the house.

7. 2nd House Loan Tax Benefits

An individual will be able to receive the following tax exemptions if they take a debt to purchase an additional house:

  • In accordance with the current provisions, taxes can be deducted from payable interest. In addition, an exemption can be availed according to the Income Tax Act 1961 for the total amount of interest remitted.
  • Several new incentives have been introduced in the Budget 2019 to encourage people to purchase real estate. For example, there was a time when only a single house could be considered occupied by self, and a 2nd was considered rented. Thus, the rent was calculated and taxed as earnings. But now, it is now possible to classify the 2nd house as occupied by oneself after the amendment.

8. Income tax exemption on tax debited for registration charges and stamp duty

There is also a tax exemption for stamp charges as well as registration charges under Section 80C, but it is only possible to be availed of up to Rs 1.5 lakh. Moreover, the exemption can, but only be availed in the year the charges are incurred.

Explained: Calculate Tax Benefits on Home Loan?

Calculating one’s tax exemptions on a home debt is easiest with an online calculator. They will receive a thorough tabulation once they enter their home debt details and select Calculate. In most cases, an individual will need the following debt:

  • Loan Value
  • Tenure/Duration
  • Debt Interest Percentage
  • Loan Starting Date
  • Total Annual earnings
  • Current exemptions according to 80C/D

Summing up

Despite the fact that an individual can reduce their financial burden and maximize their tax exemptions by using them smartly. They can lessen their tax liability and make savings in other ways other than home debts, which will lead to an increase in their net worth. It’s also possible to use most of these tools to make investments, which reduces charges and multiplies profits. If one is planning to finance their house, Tata Capital offers debt at affordable interest percentages.

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