What are the Tax Benefits for a Home Loan?

The Indian government has always provided individuals who wish to purchase a home with the aid of housing loans a benefit via tax deductions. These benefits are primarily set in place to incentivise homeownership and make funding for it easier. In addition to encouraging citizens, since income accrued from properties (as well as the property itself) is taxed separately, a tax benefit seems only just. Every borrower must know how much tax benefit on home loan . Such deduction schemes and policies help make home loans more affordable and accessible.  

Deduction in Housing Loan Interest Paid 

In most cases, a home loan is required to finance the purchase or construction of the house, which must be finished in 5 years from when the loan was taken. In alignment with this, under Section 24, you can claim a maximum house loan tax benefit of Rs. 2 Lakhs based on the interest you pay towards monthly EMIs in a year. 

As for a let-out property, home loan borrowers do not have a maximum limit on deductions they can avail on interests. However, you can only avail a maximum of Rs. 2 Lakhs on losses in the year the construction is completed.  

Deduction on Principal Payment 

The principal amount is what you undertake through the loan and does not include the interests. Under Section 80C, you can avail a tax benefit on this sum which helps lower your home loan EMI. Mainly applicable to property construction or purchase, you can claim this benefit on rented properties, self-occupied properties, and rented properties. You can get a maximum deduction of Rs. 1.5 lakhs in a year. One of the best ways to make the most of this benefit is if all the co-owners avail of it as well. In that case, each person will get Rs. 1.5 Lakhs upper limit deduction on the property. 

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Deduction on Interest Pre and Post Construction 

In case you have bought a house for which you are already paying monthly EMIs. However, you are yet to move in. In a situation like this, you can claim a deduction on home loan interests. You can only avail of a deduction after construction is complete or if the house is pre-constructed.

To get deductions during the intermediary period when the construction is happening, there is a different claim. The pre-construction interest claim allows you to avail of deductions in five equal instalments. These deductions can start from the year you got ownership rights of the property or when construction was completed. Furthermore, it does not clash with the post-construction deductions, and property owners can make both claims. The only limitation of this deduction is that it has an upper limit of Rs. 2 Lakhs. 

Stamp Duty and Registration Charges Deduction

In the process of buying property, there are several other expenses and charges that you often do not account for. These can add up to a hefty sum in the end. Stamp duty and registration charges are two aspects that make for a large part of these overhead expenses. Therefore, the government has made provisions for property owners to get a maximum deduction of Rs. 1.5 Lakhs under Section 80C. A critical thing to bear in mind about this deduction is that it can only be availed in the year these expenses are incurred. 

Section 80EE: An Additional Deduction

An additional deduction that you can look into is under Section 80EE. It only allows a maximum deduction of Rs. 50,000 and the conditions mentioned below must be met to avail of it:

  • The loan amount taken should be less than Rs. 35 Lakhs
  • The value of the property should not exceed Rs. 50 Lakhs
  • The loan must have been approved and disbursed between 1st April 2016 and 31st March 2017
  • Up until the day of the loan sanction, the property must be the borrower’s first house (first-time homeowner) 
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In the past, this deduction was only available for two years – in the financial year 2013-14 and financial year 2014-15 only. To many borrowers’ pleasure, the claim under Section 80EE was reintroduced in the financial year 2016-17 and has been in effect ever since. 

Home loans are a huge financial undertaking and can have heavy implications on your financial health if not planned out properly. Given that the loan amounts are much larger in comparison to other kinds of loans, every borrower aims to make it as affordable as possible. Aside from fulfilling all the home loan eligibility to the T, these tax deductions can significantly lower the financial burden.

Do your due diligence when researching and be thorough about which deductions apply to your case since every claim has different conditions. In case of any doubts, you can visit the government webpage, your lender’s website, or directly call your lender or bank’s customer care number. 

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