Your home loan can be a useful means of tax saving. The Government of India offers a series of tax benefits against home loans. It motivates people to invest in housing. If you have a home loan, you, too, can use it to save on income tax.
But you can only avail of this tax if you buy or construct a home. This tax exemption on a home loan is on both the interest and principal components under sections 24(b) and 80C.
Section 24(b) Benefits
Under Section 24(b), you are eligible for tax exemption up to INR 2 lakhs on your annual home loan equated monthly installments (EMIs). It applies to a self-occupied property.
There is no upper limit to claiming interest if you let out your property.
Tax Benefits for a Second Home Loan
If you buy a second home, you can also avail yourself of the provisions in Section 24(b). Your first property will be considered self-occupied, but you can claim a full tax deduction on the interest amount of the second property.
Tax Benefits During Pre-construction
In order to get the lowest home loan interest rates, you can buy a property that is under construction. But if you have not yet got possession, even if you have started paying EMIs, you will only be eligible for tax exemption on completion of the property construction.
But you can only claim tax benefits under “Section 24(b) for Pre-construction Interest Component.”
However, from the year you acquire your property or when the construction is completed, you can claim up to INR 2 lakhs annually against the pre-construction cost in five annual instalments.
Section 80C Benefits
Under Section 80C, you can claim a tax deduction annually on your loan principal, pre-payments and EMIs. Therefore, sections 24(b) and 80C can benefit you greatly in tax benefits if you have a home loan.
You can claim a total of INR 3.5 lakhs per annum through these two tax-saving provisions.
Exemptions on Registration and Stamp Duty Under Section 80C
Along with your principal repayment, you can also get an exemption on registration and stamp duty, but it is limited to INR 1.5 lakhs.
Also, you can only claim it for the year you made the expenditure.
Additional Tax Benefits Under Section 80EEA
If you are buying a house for the first time, you are entitled to an additional tax reduction of up to INR 1.5 lakhs under Section 80EEA on the interest component. It is additional to the INR 2 lakhs tax benefit that you get under Section 24(b).
The money that you save might make you feel that you are getting lower home loan interest rates but note:
- You need to be a first-time home buyer
- Applicable only for purchases between 1 April 2019 and 31 March 2022
- The value of stamp duty should not exceed INR 45 lakhs
Additional Tax Benefits Under Section 80EE
Section 80EE also offers additional tax benefits for first-time home buyers. These are the conditions that apply:
- It is only for first-time homebuyers
- You can claim up to INR 50,000 on the interest
- Only applicable if you received your loan between 1 April 2016 and 31 March 2017
- Maximum loan amount INR 35 lakhs
- Maximum stamp value INR 50 lakhs
Note: You can only claim tax benefits under either Section 80EEA or Section 80EE.
Tax Exemption Rules for Joint Home Loans
If you have a joint home loan, each of you can avail of tax exemption up to INR 2 lakhs on the interest under Section 24(b). You can also get a tax benefit of up to INR 1.5 lakhs each under Section 80C.
Conclusion
If you have taken a home loan or are applying for one, you can get a tax exemption on a home loan from the tax relief offered by sections 80C, 24(b), 80EE, and 80EEA. But you should be aware of the conditions that apply.
Moreover, having a joint home loan enhances your overall eligibility and offers you some attractive tax benefits.
So, apply for a joint home loan for your dream home today and save on tax as an additional benefit!
