Introduction

The demand for housing in India has increased in recent years. This can be attributed to many factors such as lower interest rates, the need for better housing, government initiatives, homebuyers’ sentiments to improve their living quality and so on. The Government had launched a ‘housing for all’ scheme which was supposed to be completed by 2022. However, due to the Covid-19 pandemic, this ambitious dream’s target has not yet been achieved.

Each year, people hope for better reforms and income tax rebates as part of the Union Budget. Real estate is one sector which has always grabbed the attention of the Government. As per the Income Tax Act of 1961, there are several income taxes benefits on home loans. Last year the Government also implemented additional housing loan tax benefits on interest payments of home loans, for which the deadline was 31st March 2022. This year, the finance minister proposed to extend this deadline for income tax benefits on home loans up to 31st March 2024. These income tax benefits are applicable on home loans taken in 2022. The budget has given a boost to homebuyers and the real estate industry.

Income Tax Benefits on Home Loans

The income tax benefits on home loans in 2022 are available on both the interest payments and principal repayments. Home loan deduction in income tax can be availed under Section 80C and Section 24(b) of the Income Tax Act.

Income Tax Benefits on Home Loans under Section 80C

  • Rs 1.5 lakh is the maximum income tax benefit on a home loan in 2022 that can be claimed every year on the principal repayment portion of the home loan’s EMI. However, if the principal paid in any year is less than Rs. 1.5 lakh, then only the actual principal repayment is allowed as a deduction.
  • Registration charges and stamp duty can be claimed only once in the financial year in which these expenses were incurred. However, the total deduction that can be claimed under Section 80C, including these charges, cannot exceed Rs. 1.5 lakh in any year.
  • For property under construction, the home loan deduction in income tax under Section 80C can be claimed even while the property is under construction.
  • To claim this deduction, the property cannot be sold for five years from the end of the financial year in which the property was purchased. If it is sold within five years of possession, any deductions claimed will be reversed and added to the income of the year in which the property was sold.

Income Tax Benefits on Home Loans under Section 24

  • Section 24 covers housing loan tax benefits for the interest portion of the home loan.
  • A housing loan tax benefit of up to Rs 2 lakh for houses under construction can be claimed annually on the interest paid. However, if the interest paid is less than Rs. 2 lakhs, then only the actual interest paid will be allowed as a deduction.
  • If the owner has paid municipal taxes in any year, the actual tax paid to the municipal corporation can be claimed as a deduction.
  • The deductions can offset the income from the house property for properties that are let out instead of being self-occupied. A standard home loan deduction in income tax of 30% of the net annual value is available. Net annual value signifies the income from the house property after deducting any municipal taxes. 
  • This 30% standard deduction is irrespective of the actual expenses incurred. However, any interest on a home loan can be claimed as an additional deduction over and above the 30% standard deduction.
  • There can be no standard deduction for self-occupied properties or properties where the net annual value is nil.
  • Benefits of Section 24 can only be claimed when the construction of the property has been completed. If any interest on the home loan was paid during construction, it is called pre-construction interest. This pre-construction is divided into five equal instalments, which can be claimed as a deduction under Section 24 after the competition of construction.
  • These deductions are applicable only on home loans taken on or after 1st April 1999.

Income Tax Benefits on Home Loans under Section 80EE

  • Housing loan tax benefits under Section 80EE allow a deduction of up to Rs. 50,000 in every financial year on the interest portion of a home loan. 
  • To claim this deduction, the property’s value must be less than Rs. 45 lakhs. 
  • The loan taken for the house should be up to Rs. 35 lakhs to claim this deduction. 
  • This deduction can be claimed for property under construction as well. 
  • The deduction applies to home loans sanctioned between 1st April 2016 to 31st March 2017.
  • It should be the buyer’s first property on the date of the sanction of the loan.

Income Tax Benefits on Home Loans under Section 80EEA

In 2019, the union budget introduced tax benefits to promote affordable housing opportunities through Section 80EEA. This provided an additional deduction on home loan interest for affordable housing. It is for first-time home buyers who fall in the category of ‘affordable housing’ and can claim Rs 1.5 lakh on interest paid. 

The conditions for affordable housing under Section 80EEA are as follows:

  • Home loans should have been taken between 1st April 2019 and 31st March 2020.
  • Stamp duty of the residential property should not be more than 45 lakhs.
  • It should be the buyer’s first property on the date of the sanction of the loan.

Home Loan Deduction in Income Tax on Joint Property 

Co-owners can avail of housing loan tax benefits on joint properties of a property. They both should be paying EMI to maximize the benefit from the deduction. Both applicants can claim up to Rs. 2 lakh each under Section 24(b) on home loan interest. Up to Rs. 1.5 lakh each under Section 80C can be claimed as a tax deduction on the principal repayment amount.

If both the applicants buy the property for the first time and meet the criteria of Section 80EEA, they get an additional tax deduction of Rs. 1.5 lakh. The combined tax benefit on the home loan that can be availed from Section 24, 80C, and 80EEA for two people amounts to Rs 10 lakh (Rs. 5 lakhs per person) every year, provided they meet all the requirements.

Conclusion

Getting a home is a dream for many. With attractive interest rates, a hassle-free process and tax benefits, this dream can become a reality with Tata Capital’s wide range of home loans.

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