Tax Efficiency: Strategies for Saving on Home Loans

The demand for home loans has witnessed a major surge over the past few years. With property prices increasing with each passing day, affording a home without the help of a home loan is challenging. Home loans allow borrowers to buy and live in their dream home and then pay for it slowly over the years. The flexibility to choose one's loan tenor keeps one from feeling strained or burdened. However, the biggest benefit of a home loan is that these loans offer home loan tax benefits that allow loan applicants to save a significant amount each year. In this article, we look at the home loan tax benefits in detail. 

Home Loan Tax Benefits: Simple Strategies on How to Maximize Home Loan Tax Benefits

Individuals planning to apply for a home loan must read about the home loan tax benefit extensively as knowing these tax benefits can allow loan borrowers to reduce their tax liability by a significant margin. So, read on to know more on this topic. 

1. Home Loan Tax Benefits Under Section 80C 

Under Section 80C of the Income Tax Act, home loan borrowers can claim tax benefits on the principal component of their home loan. The maximum limit permissible under this section is Rs.1.5 Lakh. If a loan borrower has more than two homes and two home loans, they can claim tax benefits under Section 80C on both home loans. However, the maximum limit permissible continues to be Rs.1.5 Lakh. Joint home loan borrowers can maximize tax benefits by claiming tax deductions on their home loans separately under this section. However, if a borrower sells their home within 5 years of buying it, all the tax benefits they had claimed under Section 80C automatically get reverted.

2. Home Loan Tax Benefits Under Section 24b 

Section 24b of the Income Tax Act deals with home loan tax benefits on the interest component of one's home loan. The maximum amount that one can claim under this section is Rs.2 Lakh. Borrowers must also keep in mind that they if they invest in an under-construction property and the construction on the property does not get complete within 5 years of buying the property, the tax deduction available under Section 24b automatically comes down to Rs.30,000 a year. Co-borrowers can maximize tax savings by claiming tax benefits separately under Section 24b of the Income Tax Act. Further, if a borrower has two or more home loans, they can claim tax benefits on all the home loans under Section 24b of the Income Tax Act. However, the tax limit under Section 24b for all home loans that one has continues to be Rs.2 Lakh.  

3. Home Loan Tax Benefits Under Section 80EE and Section 80EEA

First-time homebuyers who have invested in affordable housing can claim an additional tax deduction of up to Rs.50,000 if: 

- they had availed of the loan between April 2016 and March 2017. 

- The value of the loan is no more than Rs.35 Lakh and the value of the property is no more than Rs.50 Lakh 

Home loan borrowers can claim an additional tax benefit up to a maximum of Rs.1.5 Lakh under Section 80EEA if they meet the following conditions: 

- They must have availed of the home loan between April 2019 and March 2022. 

- The stamp duty on the property purchased with the loan money must not exceed Rs.45 Lakh. 

With a home loan, a borrower can maximize their tax deduction and claim up to Rs.3.5 Lakh or higher in tax benefits. Therefore, home loan borrowers must plan their tax savings on their home loans in advance to ensure they are claiming the maximum tax benefit available to them.