When the time comes to file taxes at the end of the financial year, most of us rely on the services of a knowledgeable and reputed Chartered Accountant and leave the task to them. However, every taxpayer must take an interest and read about the various tax benefits that have been made available to them by the Government of India.
Home loan borrowers in particular who are eligible for home loan tax benefits must read elaborately on how they can maximize tax saving on home loans to save the maximum in taxes each year.
In this brief guide, we walk the readers of this article through the home loan tax benefits made available to the citizens of India by the government of this country. We also talk about how one can maximize these tax benefits.
Home Loan Tax Benefits Under Section 80C
Section 80C of the Income Tax Act concerns itself with several different tax saving instruments and one of them is the home loan.
Under Section 80C, any individual repaying a home loan can claim tax benefits on payments they have made towards the repayment of the principal part of their home loan. The maximum tax saving on a home loan that can be claimed under Section 80C is Rs.1.5 Lakh and this is irrespective of the number of home loans an individual has. So, if you are servicing more than two home loans, you can claim tax benefits on both loans. However, the maximum home loan tax benefit you can claim under this section cannot exceed Rs.1.5 Lakh in any given financial year.
Home loan borrowers must keep in mind that if they sell the property bought with the home loan funds within 5 years of buying it, the home loan tax benefit they had claimed over the years automatically gets reversed. More importantly, this reversed benefit appears as income in the year the sale was made and the homebuyer therefore has to pay additional tax on it.
Home loan borrowers can maximize tax savings by claiming tax benefits on stamp duty and registration charges under Section 80C. However, one can claim tax benefits for these expenses only in the year in which they were incurred.
Home Loan Tax Benefits Under Section 24b
Unlike Section 24b which deals with several different tax-saving avenues, Section 24b of the Income Tax Act deals primarily with the home loan interest deduction. The maximum limit permissible under this Section is Rs.2 Lakh, irrespective of the number of home loans one has.
Now, borrowers must know several important things about home loan tax exemptions under Section 24b. First, if you had availed of a home loan to invest in an under-construction project, you can claim the maximum limit defined under Section 24b only if the construction on the property is completed within 5 years of you availing of the loan. If the delivery timeframes exceed this timeline, the maximum home loan tax benefit you can claim under Section 24b will automatically be reduced to Rs.30,000 a year.
However, you can maximize your tax savings by claiming a home loan interest deduction under Section 24b on payments made towards the repayment of the interest component of your loan during the pre-construction phase in five equal instalments spread over 5 years after the construction on the property is complete. However, the maximum home loan interest deduction under Section 24b remains capped at Rs.2 Lakh.
Home Loan Tax Benefits Under Section 80EE and Section 80EEA
First-time homebuyers are also eligible to claim tax benefits up to a maximum of Rs.50,000 under Section 80EE provided:
- The value of the property they had invested in does not exceed Rs.50 Lakh and the loan value does not exceed Rs.35 Lakh.
- The taxpayer must have availed of the loan between April 1, 2016 and March 31, 2017.
- On the day of applying for the loan, the loan applicant must not have had any other home under their name.
First-time homebuyers can also claim home loan tax benefits with a cap of Rs.1.5 Lakh under Section 80EEA provided they meet the following conditions:
- The stamp value of the property bought with the loan money must not exceed Rs.45 Lakh.
- The person claiming the home loan tax benefit must have availed of a home loan between April 1, 2019 and March 31, 2022.
- The loan applicant must not be eligible to make claims under Section 80EE of the Income Tax Act and they must not have had any other property in their name at the time of applying for the loan.
Final Words
Home loan benefits can help taxpayers significantly reduce their tax liability by a significant margin. Therefore, all home loan borrowers must read about home loan tax benefits and make sure they are claiming the maximum benefit they can.