Buying a home is one of the most important decisions in a lifetime. Home Loan tax benefits are significant and can swing the decision in favour of buying vs renting. There are 3 major tax benefits you can avail on home loans in India
Section 24: Tax Deduction on Home Loan Interest
Section 80C: Tax Deduction on Principal Repayment
Section 80EE: Home Loan Tax Benefits for First-Time Homeowners
Tax Deduction on Home Loan Interest: Section 24
Home Owners are entitled to a deduction of up to Rs 2 Lakhs on the interest paid for their home loan if the owner or his family resides in the house or if the property is vacant. You can claim deduction on the entire amount if you rent out the property.
The deduction is limited to Rs 30000 if you do not meet any of the following conditions
- The home loan must be for purchase and construction of a new property.
- The loan must have been taken on or after 1 April, 1999.
- The purchase or construction must be completed within 3 years from the end of the financial year in which the loan was taken.
So if the loan has been taken for reconstruction or repairs of an existing property, only Rs.30,000 can be claimed as deduction.
This deduction can only be claimed starting in the financial year in which the construction of the property is completed.
The interest paid during the time of construction can be claimed as tax deduction in five equal installments starting from the year in which the construction of the property is completed.
Tax Deduction on Principal Repayment: Section 80C
Under Section 80C you can claim a deduction upto Rs 1.5 Lakhs on the home loan principal repayment. You can see the amount of principal repaid in the financial year in the statement that the lender provides for Income tax filing.
You need to satisfy the following conditions to qualify for this deduction:
- The home loan must be for purchase or construction of a new house property.
- The property must not be sold in five years from the time you took possession. Doing so will add back the deduction to your income again in the year you sell.
Stamp duty and registration charges and other expenses related directly to the transfer are also allowed as a deduction under Section 80C, subject to a maximum deduction amount of Rs.1,50,000. You can claim these expenses in the same year you make the payment on them.
Home Loan Tax Benefits for First Time Homeowners: Section 80EE
A recent change to the Income Tax act, Section 80EE, provides first time home loaners an additional tax benefit of upto Rs 50000 on the interest paid on the home loan.
The tax benefit under section 80EE is available if the following conditions are met:
- Only individuals can claim this deduction. HUF, companies or any other tax payer cannot claim deduction under this section.
- The loan should be taken from the bank or a housing financial company and sanctioned during financial year 2016-17.
- The loan amount should be Rs 35 Lakhs or lower.
- Value of the residential house property should be 50 Lakhs or less.
- The claimant does not own any house on the date of sanction of loan.
This deduction is in addition to the Rs 2 Lakhs available in Section 24. You should exhaust sections 24 and then apply this deduction.
There are other tax benefits on home loans which can be availed in specific conditions. These 3 are the most common and easy to avail. Every home buyer can reduce their tax liability by availing these benefits.