Unlocking Home Loan Income Tax Benefits: What you Need to Know - Loan Trivia


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Wednesday 10 April 2024

Unlocking Home Loan Income Tax Benefits: What you Need to Know

Owning a home is a dream for many, and with the rising real estate prices, taking a home loan has become a common financial strategy in India. 

Besides the obvious advantage of having a place to call your own, there are significant home loan income tax benefits in India that borrowers can leverage. Understanding these benefits can make a substantial difference in one's overall financial planning. 

Home Loan Income Tax Benefits in India

In India, the government encourages home ownership by offering income tax benefits on home loans. These benefits come in the form of deductions on both the principal repayment and the interest paid.

  • Section 24 

Section 24 of the Income Tax Act plays a pivotal role in determining the tax deductions on home loan interest. As per this Section, borrowers can claim deductions on the interest paid on their housing loans. 

As per the current regulations, individuals can claim a deduction of up to Rs.2 lakh on the interest paid for a self-occupied property. However, if the property is rented out, there is no upper limit on the interest deduction. 

  • Section 80C

According to Section 80C of the IT Act, individuals can claim a deduction of up to Rs.1.5 lakh on the principal amount of the home loan. This deduction may include stamp duty and registration fees and can be claimed once in the same year in which they are incurred. 

However, it's crucial to note that the home loan should have been taken for the purchase or construction of a new house to be eligible for this deduction. 

  • Section 80EE

Apart from the deduction on interest payments, borrowers can also avail of benefits on the repayment of the principal amount under Section 80EE. This section allows for an additional deduction of up to Rs.50,000 on the interest paid, provided certain conditions are met. 

One such condition is that the loan amount should not exceed Rs.35 lakh, and the value of the property should not exceed Rs.50 lakh.

  • Section 80EEA

Introduced in the Union Budget 2019 to boost the affordable housing segment, Section 80EEA offers a tax deduction of up to Rs.1.5 lakh on the interest paid on affordable housing loans for first-time homebuyers. 

However, it is essential to note that this deduction is no longer available for home loans sanctioned on or after April 1, 2022. The benefits offered under this section were applicable only to housing loans sanctioned until March 31, 2022.

  • Tax Deductions for Joint Home Loans

Individuals who take out a home loan jointly might each receive a home loan tax benefit. This means that if two people apply for a joint home loan, each can claim a tax benefit of up to Rs.1.5 lakh and Rs.2 lakh on the principal and interest, respectively. 

Given that the co-applicants are purchasing their first home, they will be eligible for an additional tax deduction of up to Rs.1.5 lakh, for a total tax benefit of Rs.10 lakh. 

Several lenders offer pre-approved loan offers to current borrowers based on their creditworthiness. These offers apply to loans against property, home loans, and so on. Individuals interested in seeing their pre-approved offers can enter their basic information on the lender's website.

Understanding the nuances of home loan income tax benefits is essential for borrowers to optimise their tax planning strategies. By leveraging deductions offered by the Income Tax Act, individuals can reduce their tax burden significantly while fulfilling their dream of homeownership.

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