Unlocking Home Loan Tax Advantages: What You Need to Know

Home loans are loans secured by the property bought with the loan money. Individuals repay these loans in the form of home loan EMIs. During the early years, lenders focus more on recovering the interest component of the home loan and therefore, the majority portion of one's EMIs go towards recovery of the interest component of the loan during the initial years. Home loans are also long-tenor loans and borrowers easily take up to 20 to 30 years to repay these loans. Since home loans involve big-ticket sizes, a long tenor eases the burden of loan repayment. Home loans also make one eligible for various home loan tax benefits. Here, we focus on these tax benefits. 

Tax Benefits Available to Home Loan Borrowers 

1. Section 24(b) of the Income Tax Act 

Section 24(b) is one of the most important sections of the Income Tax Act which deals with only the tax benefits available on the interest component of one's home loan. Under this section, home loan borrowers can claim tax benefits up to Rs.2 Lakh in any given financial year. If one has more than two home loans, one can claim tax benefits on the interest component of both home loans. However, the upper limit cannot exceed Rs.2 Lakh. Further, if one had invested in an under-construction property, they can claim tax benefit on pre-construction interest in five equal instalments spread over five years. However, even in this case, the maximum tax benefit that one can claim on pre-construction interest and post-construction interest cannot exceed Rs.2 Lakh in any given financial year. Lastly, here is something else housing loan borrowers must know: in the case of rented-out properties, one can claim a tax deduction on the entire interest paid during any given financial year. 

2. Section 80C of the Income Tax Act 

Section 80C of the Income Tax Act deals with many different tax-saving instruments and one such instrument is a home loan. Under this section, housing loan borrowers can claim tax benefits up to a maximum of Rs.1.5 Lakh on payments made towards the principal component repayment of one's home loan. There are a few things to note here. Home loan tax benefits under Section 80C of the Income Tax Act can be claimed only in the case of fully constructed properties. Further, under this section, one can claim tax benefits only on self-occupied properties. Lastly, under Section 80C, one can also claim tax deductions on payments made towards stamp duty and registration charges.

3. Section 80EE and Section 80EEA of the Income Tax Act 

First-time homebuyers who had availed of a home loan between April 1, 2016, and March 31, 2017, can claim an additional tax benefit of up to Rs.50,000 under Section 80EE of the Income Tax Act and first-time homebuyers who had availed of a loan between April 1, 2019, and March 31, 2022, can claim an additional tax benefit up to a maximum of Rs.1.5 Lakh under Section 80EEA. However, both these sections also have other conditions that must be met before one can claim tax benefits under these sections. For instance, under Section EEA, one can claim tax benefit only if the stamp value of the property is no more than Rs.45 Lakh and one can claim tax deduction under Section 80EE only if the home loan amount sanctioned is below 35 Lakh. Similarly, other conditions must be met as well.

So, these are the housing loan tax benefits available to home loan payers in India and every home loan borrower must make the best use of these benefits available to them.