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  • Tax Benefits on Home Loan

    While a housing loan can assist you in purchasing a home for yourself, it can also prove to be a costly endeavour. However, the numerous tax advantages that come with such a loan enable you to make annual financial savings.

    The deadline for claiming additional deductions for house loan interest payments was recommended to be extended to 31 March 2024 by Union Finance Minister Nirmala Sitharaman in the budget speech.

    This comes after the administration extended the deadline to 31 March 2022, in the previous budget. All house loans approved to that date will be subject to the extension on home loans through 31 March 2024.

    Tax Benefits on Home Loan (FY 2023-24)

    The following table gives you the tax benefits under the corresponding sections of the Income Tax Act, of 1961.

    Income Tax Act Maximum Deductible Amount
    Section 24 Rs.2 lakh per annum
    Section 80C Rs.1.5 lakh per annum
    Section 80EE Rs.50,000

    New Updates (Union Budget 2023-2024)

    • Eligibility period for claim of additional deduction for interest of Rs.1.5 lakh paid for loan taken for purchase of an affordable house extended till 31 March 2022.
    • Eligibility period for claiming tax holiday for affordable housing project extended by another year. The new deadline is 31 March 2023.
    • A new tax exemption was proposed for the notified Affordable Rental Housing Projects to promote the supply of Affordable Rental Housing for migrant workers.
    • While there were no major changes regarding the deductions under home loans, the only major news worth noting was the allocation of Rs.48,000 crore to the Pradhan Mantri Awas Yojana (PMAY).

    Deduction for interest on a Home Loan

    You can avail yourself of a home loan with the sole purpose of constructing or purchasing a house. However, the construction of your house must be done within five years of the availing of the loan, your home loan has two components – principal payment and interest payment.

    You can claim a deduction under your interest category of up to Rs.2 lakh under Section 24.

    The maximum deduction on interest paid for self-occupied houses is Rs.2 lakh. This rule has been in effect from 2018-19 onwards.

    However, if your property is a let out, then there is no limit on the interest you can claim.

    However, the maximum total loss under the heading "House Property" that may be claimed is only Rs 2 lakh. From the year when the house's construction is finished, you can claim this deduction.

    Deduction for interest paid on a home loan during the preparatory phase

    One kind of interest that is eligible for a write-off under the Income Tax Act is pre-construction interest. A deduction in five equal installments commencing with the year the property is acquired or construction is completed is allowed in addition to the deduction from your residential property income that you would otherwise be qualified to claim. The eligibility threshold remains at Rs.2 lakh.

    Take into account, for example, that you pay Rs.10,000 in interest each month on a home loan for construction. In 2022, the house's construction was completed after two years. Therefore, you cannot start making claims for the pre-construction interest of approximately Rs.2.4 lakh until the construction has been finished in five equal installments starting in 2022. However, Section 24(b) caps the total interest deduction at Rs.2 lakh, including interest from the current year plus interest from prior projects.

    Home Loan Tax Benefits under Section 80C – Principal Deductions

    Section 80C deals with the principal amount deductions:

    • For both self-occupied and let-out properties, you can claim up to a maximum of Rs.1.5 lakh every year from taxable income on principal repayment.
    • Stamp duty and registration charges may be included in it. However, it can be claimed only once.
    • To claim it, you need to complete the construction of the property first.
    • You should not sell your house within 5 years of possession to claim this deduction.
    • If you sell your house within 5 years after possession, any deduction claimed will be reversed in the year in which you sell it. This amount will also be added to your income for the year of sale.

    Tax Benefits under Section 80EE

    • Allows you to avail tax benefits of up to Rs.1.5 lakh on the interest component paid on a home loan
    • The benefit can be availed over and above the existing exemption of Rs.2 lakh under Section 24(b)
    • The value of property must be less than Rs.45 lakh.

    Home Loan Income Tax Benefits 2023

    For interest paid on home loans for affordable housing, an additional Rs.1.5 lakh tax deduction under Section 80EE can be availed till 31 March 2022. This is applicable for loans that were received till 31 March 2024. The total Income Tax Deductions that can be availed would now be up to Rs.7 lakh for this time period.

    Deduction for Joint Home Loan

    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 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 home loan can give you greater tax benefits.

    Here is the list of deductions you can claim for a joint home loan:

    Deductions Maximum Deduction Section of the Income Tax Act Terms
    Interest Rs.2 lakh 24b For buying or constructing a new house which must be completed within five years from the financial year end in which the loan was availed.
    Interest Rs.1.5 lakh 80EEA For property which has a stamp value of up to Rs.45 lakh.
    Interest Rs.50,000 80EE For a loan amount of up to Rs.35 lakh and for property value of up to Rs.50 lakh.
    Principal Rs.1.5 lakh 80C Sale of property should not be done before 5 years of possession is completed.
    Stamp Duty Rs.1.5 lakh 80C Should be claimed in the same financial year as it was spent.

    Home Loan Tax Benefits of Owning a Second Property

    As per the current provisions, tax benefits are applicable on payable interest. You can claim the entire paid interest amount.

    It has been proposed that the second self-occupied home can also be claimed as a self-occupied one to help borrowers save more on taxes.

    How to Claim Tax Benefits on Home Loans?

    Claiming tax benefits on a home loan is a simple process. Below are the steps to claim your tax deduction.

    Step 1: Calculate the tax deduction to be claimed.

    Step 2: Ensure that the house is in your name or you are the co-borrower of the loan.

    Step 3: Submit your home loan interest certificate to your employer to adjust the tax deductible at source.

    Step 4: In case you don’t perform the above step, you would have to file the tax return by yourself.

    Step 5: In case you are self-employed, you are not required to submit these documents anywhere. Just keep them handy in case the IT department raises queries in the future.

    How to Calculate Tax Benefits on Home Loan?

    The easiest way to calculate your tax benefits on a 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:

    • Loan Amount
    • Tenure
    • Interest Rate
    • Loan Start Date
    • Gross Annual Income
    • Existing Deduction Under 80C/D

    FAQs on Tax Benefits on Home Loan

    1. Can I claim tax benefits if I plan on constructing the house and selling it in a few years?

      If you sell the property within 5 years of possession, any tax deductions already claimed will be reversed. However, the tax exemption on interest paid will remain unchanged.

    2. Who is eligible to claim tax deductions on home loans?

      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 their share of the loan they pay.

    3. The property I purchased with a home loan is still under construction. Can I claim tax benefits?

      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 installments from the year in which construction is completed.

    4. Can I claim tax benefits on loans from friends?

      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.

    5. Can I claim tax benefits on two home loans?

      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.

    6. Can my spouse claim an income tax deduction if we buy a house jointly?

      Yes, you can claim separate deductions in your IT returns if your spouse is employed and has a separate source of income. You can both claim a 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.

    7. Is the Home Loan principal part of Section 80C?

      Yes, the 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 of 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 component during the years the house was being constructed.

    8. Are there any other tax deductions I can claim with respect to interest payment on the home other than the interest under Section 24(b)?

      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.1.5 lakh during a financial year.

    9. Can I claim tax benefits on the principal repaid on a housing loan?

      Yes, you can avail of tax benefits on the principal amount repaid on the home loan from total income under Section 80C.

    10. What is the maximum amount I can avail of for deduction of interest paid on my housing loan?

      Under Section 24 of the Income Tax Act, an individual can claim a tax deduction of the interest payment on the housing loan up to a maximum amount of Rs.2,00,000. You can claim this deduction if you complete the building of the house within 5 years otherwise you can claim only Rs.30,000.


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