Taking a home loan can help you save tax as per the provisions of the Income Tax Act, 1961. Even more so after the announcements made during the latest financial budget 2019. While a housing loan can help you get a house for yourself, it can also turn out to an expensive affair. But the various tax benefits that come with such a loan help you save money every year. Take a look at how you can make the most of these benefits.
The following table gives you the tax benefits under the corresponding sections of the Income Tax Act, 1961.
| Section | Nature of Tax Deduction | Maximum Tax Deductible Amount |
|---|---|---|
| Section 24 | Interest | Rs.2 lakh (for self-occupied house) No limit (for let-out property) |
| Section 80C | Principal (including stamp duty and registration fee) | Rs.1.5 lakh |
| Section 80EE | Additional interest (for first-time buyers) | Rs.50,000 |
This section deals with the yearly deductions related to the interest you pay on your property loan. The relevant details are given below:
Section 80C deals with the principal amount deductions:
If you’re buying a house for the first time, you can claim the following interest deduction in addition to the benefits already mentioned above under Sections 24 and 80C:
If the housing loan is availed by two or more persons, each of them is eligible to claim a deduction on the interest paid up to Rs.2 lakh each. Tax can be deducted on the principal paid as well for an amount up to to Rs.1.5 lakhs each. However, all the applicants should also be co-owners of the property in order to claim this deduction. Therefore, a joint loan can give you greater tax benefits.
As per the current provisions, if you have more than one self-occupied property, then only one of them will be accepted as self-occupied. For the other property, you will have to pay tax on the basis of notional rent. You can choose either of your properties as the self-occupied one to maximise tax benefits.
As per the finance budget announced in February 2019, it was proposed that the second self-occupied home can also be claimed as a self-occupied one instead of it being deemed to be let out on rent. This will prevent the incidence of paying tax based on notional rent, helping the owner save money. It will also help you claim tax deductions for the second property as well.
Imagine a situation where you are staying in a house on rent and have also taken a home loan for your own property. In such cases, you can not only claim tax deductions on your loan, but also claim House Rent Allowance (HRA) deductions on the rent you’re paying. However, note that you can claim this deduction only if you live in the house you’ve rented. You cannot make a claim even if your dependent family members are staying in it without you. You can claim HRA depending on the lowest value of:
Remember these when you file your taxes for the year.
Now that you know what tax benefits you get when you take a property loan, make sure you use them to your advantage and save as much money as you can.
Claiming tax benefits on home loan is a simple process. Below are the steps to claim your tax deduction.
Step1: Calculate the tax deduction to be claimed.
Step2: Ensure that the house is in your name or you are the co-borrower of the loan.
Step3: Submit your home loan interest certificate to your employer to adjust the tax deductible at source.
Step4: In case you don’t perform the above step, you would have to file the tax return by yourself.
Step5: In case you are self-employed, you are not required to submit these documents anywhere. Just keep them handy if in case the IT department raises queries in the future.
The easiest way to calculate your tax benefits on home loan is by using an online calculator. Simply enter your home loan details and click on calculate and a detailed tabulation will pop up. The details you will generally need are:
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If you sell the property within 5 years of possession, any tax deductions already claimed will be reversed. However the tax exemptions on interest paid will remain unchanged.
The owner of the property can claim tax benefits. If the spouse is a co-borrower, they can also file for tax deductions. In the case of a joint loan, both parties can claim for their share of the loan they pay.
You cannot claim tax deductions till the construction is completed. Once it is completed, you can claim an aggregate of interest paid for the period prior to the year of taking possession. This can be claimed in five equal instalments from the year in which construction is completed.
You can claim for tax deduction under Section 24(b) only for the interest paid. The friend will have to provide you with a certificate and will be liable to pay tax on the interest earned from the loan.
Generally, tax benefits can be availed only on the house claimed as self-occupied. In case if you own two houses, only one of them can be claimed as self-occupied property. The other house will be considered as a let-out property and will be taxed as per the tax slab applicable. The notional rent on your second house will be added to your income. To save on the applicable tax, one can consider investing the second house in his/her spouse’s name. However, only one residential property can be relieved from being taxed. You will have to pay wealth tax on the second home.
Yes, you can claim separate deductions in your IT returns if your spouse is employed and has a different source of income. You can both claim deduction under Section 80C up to Rs.1.50 lakh from your total income. If the house is jointly owned, each co-owner can claim deductions up to Rs.2 lakh on account of the interest on borrowed money. However, if the house is being rented, there is no restriction on the claiming amount and you can individually claim deductions based on the ratio of possession on the property.
Yes, home loan principal is part of Section 80C of the Income Tax Act. Under this section, an individual is entitled to tax deductions on the amount paid as repayment of the principal component on the housing loan. An amount up to Rs.1.50 lakh can be claimed as tax deductions under Section 80C. However, the tax benefit on the repayment of the principal amount can be claimed only after the house is constructed. The section does not allow deductions for the repayment of the principal part during the years the house was being constructed.
An individual is entitled to the following benefits if he/she is staying in a rented place after buying a home loan:
The Housing Rent Allowance benefit stops once the construction of the property is complete. You can avail all tax benefits on the housing loan only if the construction of property has been completed and is ready to move in during the same financial year. You can still claim tax benefits if you are living in a rented accommodation after giving your house on rent. However, the rent you receive on the property will be added to your taxable income and will be taxed as per the applicable tax slab.
No, self-employed individuals cannot claim Housing Rent Allowance (HRA) benefit. However, you can save tax on the house rent paid under Section 80GG of the Income Tax Act, provided the rent has not been claimed under another section of the IT Act.
You can also claim tax deductions in respect of the interest on the housing loan under Section 80EE of the Income Tax Act. Under this section, an individual is entitled to claim tax deductions up to a maximum amount of Rs.50,000 during a financial year. The deductions, however, cannot be claimed if you have repaid the entire home loan. You can claim tax benefits under Section 80EE if you haven’t purchased a house before. The value of the house should not exceed Rs.50 lakh and the home loan taken for the property should be less than Rs.35 lakh to avail this benefit.
Yes, you can avail tax benefits on the principal amount repaid on the home loan from total income under Section 80C. However, you can only claim tax deductions up to a maximum amount of Rs.1.50 lakh under this section.
Under Section 24 of the Income Tax Act, an individual can claim tax deduction of the interest payment on the housing loan up to a maximum amount of Rs.2,00,000. However, there is no limit on the interest payment deduction of the property is rented.
Under Section 24B of the Income Tax Act, taxpayers are eligible for benefits on the interest paid towards the home loan availed for the purpose of home construction/purpose and home repair/renovation. On the other hand, Section 80C states the eligibility for tax deductions on the principal amount paid against the home loan availed only for the purpose of home construction/purchase of a property/house. According to the Act, tax benefits can be claimed only on the home loans availed for the aforementioned purposes. However, in case of home top-up loans, tax deduction is only applicable for the interest paid on the loan under Section 24B of the IT Act. Furthermore, the Act does not have any provisions for tax benefits on home loan balance transfer despite having no restrictions on the number of times one can transfer his/her home loan.
13 March 2019
The interim budget contains a provision that proposes a waiver of taxes on the second residential property owned by a single person. Previously, even if a house was unoccupied, a notional rent would be considered and a percentage of that would have to be paid as taxes by the property owner. Since the interim budget proposes a change, it could provide relief for those who own two properties. This will particularly be helpful with regard to long-term capital gains on residential property. For those with no outstanding home loan and those whose housing loan interest is below the threshold limit of Rs.2 lakh, there are no restrictions about carrying forward interest for the following tax assessment years.
19 February 2019
Finance Minister Piyush Goyal has announced in a proposed Finance Bill that people earning up to Rs.9.5 lakh can reduce their tax liability by making use of the different savings schemes available. These schemes have been made available under the Income Tax Act. There was a proposal to increase the tax rebate offered to people earning up to Rs.5 lakh per year to Rs.12,500. This would have eliminated any tax liability that such persons had. There was a proposal to increase standard deduction to Rs.50,000. This was part of a wider range of schemes to benefit home buyers. In the same vein, the TDS limit was on income derived from interest was to be increased to Rs.40,000. These were proposed to provide some relief to senior citizens with tax liabilities.
13 February 2019
Mr. Piyush Goyal, the Union Finance Minister of India while presenting the Interim Budget on 1 February 2019, announced a tax rebate for the citizens who are earning an annual income of Rs.5 lakh. This was previously for people who have an annual income of Rs.2.5 lakh.
The primary aim of the Interim Budget 2019 was to cater to the middle-income group of citizens in the country and the tax rebate is a step forward in order to help the people save more out of their annual income.
Under Section 87A of the Income Tax Act, the 5 percent tax which was previously levied for a person with an annual income of Rs.2.5 lakh and above, will now be applicable for the people with an annual income of Rs.5 lakh and above. To add, Mr. Goyal mentioned that even though citizens earning up to Rs.5 lakh per annum will not be subjected to any tax deductions, the people with an annual income of Rs.6.5 lakh may not be required to pay taxes if they invest some money in various investment options such as insurances, mutual funds, etc.
According to the previous tax deduction rates, Rs.2,500 was the rebate offered for people earning an annual income of Rs.3.5 lakh. According to the budget, a rebate of Rs.12,500 will be given for the people with an annual income ranging between Rs.2.5 lakh to Rs.5 lakh, which is 5% of the annual income.
12 February 2019
The interim budget for 2019 announced on 1 February was particularly beneficial for the middle-class working people of the country. As the government increased the tax relief limit to Rs.5 lakh per annum, per capita savings for Indians will increase gradually. Apart from this, the budget has also made to boost the real-estate sector in the country to a great extent.
According to the interim budget proposed, the government has exempted 2 years' worth of tax on the notational rent of a person’s second self-occupying house. Along with this, a GST council has been appointed in order to reduce the amount of money paid for GST by the people who buy homes. The aim of the government is to increase the demand for home loans which in turn will eventually have a positive effect on the home insurance business.
The opening of the Jan Dhan Bank and the launch of Ayushman Bharat have been particularly beneficial for the people of India. The Jan Dhan Bank already holds over 34 crore bank accounts and over 50 crore people will be benefited with health care privileges with the Ayushman Bharat healthcare programs.
5 February 2019
Indian residents with an annual income of over Rs.2.5 lakh need to pay Income Tax, as per the current income tax slab. However, there are ways in which you can save money by claiming a tax deduction on investments under Section 80C to 80U, as per the Income Tax Act. Let’s take a look at some of the top 5 tax-saving options that you can avail
1 February 2019
Ahead of the 2019 budget, middle-class citizens paying tax are in expectancy of housing loans with decreased interest rates, increased savings limits and concession to pensioners. The first budget of the Modi government in 2014 was beneficial for middle-class people as the basic tax exemption limit was raised from Rs.2 lakh to Rs.2.50 lakh. In terms of the home loan, the deduction limit was also raised from Rs.1.50 lakh in a year to Rs.2 lakh in a year under the Section 80C of the ITA.
In 2015, the wealth tax was dismissed by the government and the Sukanya Samridhi Scheme was made completely tax-free. Apart from this, the deduction of the health insurance premium was increased from Rs.15,000 to Rs.20,000. The tax-free transport limit was increased by Rs.800 per month to Rs.1,600 per month.
The 2016 interim budget was beneficial for new applicants of home loans as the government exempted an additional amount of Rs.50,000 on loans amounting up to Rs.35 lakh. The tax rebate was increased from Rs.2,000 to Rs.5,000 for the people with an income of below Rs.5 lakh.
In 2018, the government reintroduced the standard deduction of Rs.40,000 for salaried employees. However, the medical and transport allowances given to employees were to be subjected to tax.
However, according to reports, the expectations for this year’s budget is said to be enforced only in the 2020 budget.
30 January 2019
As per Credit Analysis & Research Limited (CARE), Maharashtra is the most proactive state to implement the Real Estate (Regulation and Development) Act, 2016. The rating and research agency also revealed that other states including Haryana, Uttar Pradesh, Delhi, and Rajasthan were also implementing RERA and actively registering real estate projects. According to the report, as of 28 November 2018, the RERA Act, 2016, which came into effect from 1 May 2017, has around 34,600 projects and 26,800 real estate agents being registered under the act. The real estate Act was enacted to protect the interest of the homebuyers and boost investment in the sector. The main aim of the RERA act was to get timely completion and delivery of projects to the buyers as well as bring more transparency and accountability in the real estate sector. Under the Act, all the states have to form the regulatory authority and frame the rules that will govern the functioning of the regulator.
Going further, the CARE report revealed that 28 states and seven union territories (UTs) have notified rules under RERA. It must be noted that the RERA Act is not applicable in Jammu Kashmir. Meanwhile, 6 northeastern states including Arunachal Pradesh, Sikkim, Manipur, Meghalaya, Mizoram and Nagaland as well as West Bengal have enacted their own act called Housing and Industry Regulation Act. The Ministry of Housing and Urban affairs also revealed that only Haryana, Madhya Pradesh, Maharashtra, Uttar Pradesh and Tamil Nadu have operationalised a permanent appellate tribunal. Meanwhile, several other states are yet to establish the appellate tribunal under the RERA act. Andaman and Nicobar islands, Dadra and Nagar Haveli, Daman and Diu and Puducherry are the only UTs to establish a permanent appellate tribunal.
The ministry of housing and urban affairs records that 18 states and five UTs (excluding Lakshadweep and Puducherry) have set up and operationalised their web portal till November last year. This means that 30% of the states are yet to establish the web portal and registration process. Only 12 states and three UTs namely National Capital Territory (NCT) of Delhi, Daman and Diu, and Dadra and Nagar Haveli, have established permanent regulatory authority and 10 states and three UTs namely Andaman and Nicobar Islands, Chandigarh and Puducherry have interim regulatory authority
18 January 2019
The Indian Government allowed deductions of up to Rs.1 lakh under Section 80C and 80CCC (combined limit) on tax-exempt investments, including home loan principal repayment in AY 2014-15. In the past four years, this limit has been increased to Rs.1.5 lakh. The allowed deductions also include repayment of the home loan (principle) up to Rs.1.5 lakh.
Next up, the interest component from a taxpayer’s home loan repayment is tax deductible up to a limit of Rs.2 lakh. In case of senior citizens, the limit is up to Rs.3 lakh in this financial year. The limit was increased from Rs.1.5 lakh in AY 2014-15. In a bid to beef up affordable housing, the central government allows a further Rs.50,000 deduction on the interest component of home loan repayment. However, this is applicable only if the taxpayer is a first-time home buyer and the loan value is up to Rs.35 lakh while the value of the house is up to Rs.50 lakh. This was introduced as a one-time deduction in AY 2014-15 up to Rs 1 lakh, spread over two years. The eligibility has been raised from Rs 25 lakh in loan value and Rs 40 lakh in the value of the house.
17 January 2019
Under Section 80C of the Income Tax Act, an individual and HUF can also claim tax deductions on the repayment of home loans. If the spouse is working and has another source of income, the repayment on the housing loan can be claimed by both of them, if they are joint owners of the property. There is no tax applicable on a property for self-occupation. If the person owns two properties, the owner will have to provide notional rent on the other property. However, if the spouse is earning, the property can be registered under his/her name and can be considered as self-occupied property. This can help the couple take benefit of the tax laws to minimise total tax liability.
5 September 2018
