When it comes to purchasing a home, there’s more to it than just securing a loan and making monthly payments. One of the most attractive features of homeownership in India is the tax benefits that come with home loans. However, many homebuyers fail to fully capitalize on these advantages, leaving valuable savings on the table.
In this article, we’ll dive into the home loan tax benefits that are often overlooked. We’ll cover everything you need to know, from how to claim deductions on your home loan interest, to tax exemptions available under Section 80C, and much more. So, whether you’re a first-time homebuyer or someone looking to maximize your tax savings, keep reading!
What Are the Tax Benefits on Home Loan Repayment?
Home loans offer two significant types of tax benefits in India: tax benefits on home loan interest and tax benefits on principal repayment. These deductions, spread across different sections of the Income Tax Act, can help reduce your taxable income, ultimately leading to tax savings.
1. Home Loan Interest Deduction under Section 24(b)
One of the primary tax benefits for home buyers is the deduction on home loan interest. Under Section 24(b) of the Income Tax Act, a taxpayer can claim a deduction of up to ₹2,00,000 per year on the interest paid for a self-occupied property. This is available for loans taken for both purchase and construction.
Key Points:
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The maximum deduction on home loan interest is ₹2,00,000 per financial year.
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This benefit is available only if the property is self-occupied.
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For let-out properties, the entire interest paid can be claimed as a deduction, with no upper limit.
Example: If you are paying ₹2,50,000 in interest on your home loan in a year, you can claim ₹2,00,000 under Section 24(b) and reduce your taxable income accordingly.
2. Principal Repayment Deduction under Section 80C
Another significant home loan tax benefit comes under Section 80C. This section allows you to claim deductions of up to ₹1,50,000 per year on the principal repayment of your home loan. This deduction is available regardless of whether the property is self-occupied or let-out.
Key Points:
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You can claim deductions for principal repayment of your home loan, subject to the ₹1,50,000 limit.
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The property can be a self-occupied or rented one.
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Other payments that qualify under Section 80C include life insurance premiums, PPF contributions, and EPF contributions.
Example: If you paid ₹1,20,000 in principal repayment during the year, you can claim the entire amount under Section 80C, thus lowering your taxable income.
How to Claim Tax Deduction on Home Loan Interest?
Claiming tax deductions on your home loan interest is a relatively straightforward process. Here’s how you can go about it:
Step 1: File Your Income Tax Return
To claim the home loan interest deduction, you must file your Income Tax Return (ITR). You can do this online through the Income Tax Department’s website or use a tax consultant for assistance.
Step 2: Gather the Necessary Documents
You will need to collect the following documents:
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Loan statement showing interest and principal paid during the year
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Form 16 (for salaried individuals)
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Proof of property ownership
Step 3: Declare the Deduction in the ITR
In your ITR, you’ll find sections to fill out under “Income from House Property”. This is where you can claim the home loan interest deduction under Section 24(b).
Step 4: Verify the Deduction
Once your return is processed, the tax benefit on home loan interest will be reflected in your final assessment.
Home Loan Tax Benefits under Section 80C and 24(b) Explained
Both Section 80C and Section 24(b) offer distinct benefits related to home loans. While Section 80C focuses on principal repayment, Section 24(b) allows you to claim deductions for home loan interest.
Section 80C – Principal Repayment
As mentioned earlier, Section 80C gives you a deduction up to ₹1,50,000 for the principal repayment of your home loan. This is ideal for those looking to reduce their taxable income by factoring in their home loan payments.
Section 24(b) – Interest Deduction
Under Section 24(b), you can claim up to ₹2,00,000 on the interest paid for a self-occupied property. If your property is let-out, you can claim the full amount of interest without an upper limit.
Can I Get Tax Benefits for Joint Home Loan Borrowers?
Yes! If you have a joint home loan, both borrowers can claim the tax benefits individually, which can significantly increase the total deductions. Here’s how it works:
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Home Loan Interest: Each borrower can claim a deduction of up to ₹2,00,000 on interest paid, even if they are not paying the entire interest amount.
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Principal Repayment: Each borrower can also claim a deduction of up to ₹1,50,000 for the principal repayment under Section 80C, provided the principal amount is paid in the ratio of the borrower’s contribution to the loan.
Example: If you and your spouse are both co-borrowers on a home loan, both of you can claim a deduction of ₹2,00,000 on home loan interest and up to ₹1,50,000 on the principal repayment. This means a potential total deduction of ₹7,00,000 per year.
Tax Benefits for First-Time Home Buyers on Home Loans
First-time homebuyers are often unaware of some of the exclusive tax benefits available to them. These benefits are aimed at encouraging homeownership among new buyers.
1. Additional Deduction under Section 80EEA
First-time homebuyers can avail of an additional deduction of up to ₹1,50,000 under Section 80EEA. This deduction is available on interest payments for home loans sanctioned between April 1, 2019, and March 31, 2022, for properties costing up to ₹45 lakh.
2. First-Time Homebuyers in Affordable Housing
If you buy a home in the affordable housing segment, you may also qualify for an additional tax benefit under Section 80EE.
3. Exemption from Capital Gains Tax
If you sell your previous property and use the proceeds to purchase a new one, you may also be eligible for capital gains tax exemptions under Section 54.
How Much Tax Can I Save on Home Loan Principal Repayment?
The tax savings you can enjoy on home loan principal repayment depend on several factors, including:
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The amount of principal repaid during the financial year.
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The total amount you can claim under Section 80C (which has a limit of ₹1,50,000).
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Whether you are claiming other deductions under Section 80C (such as PPF, EPF, etc.).
For example, if you paid ₹1,00,000 in principal repayment on your home loan, you can claim the full amount under Section 80C, thus reducing your taxable income by ₹1,00,000. The exact tax savings will depend on your income tax slab.
Are There Any Hidden Home Loan Tax Benefits People Miss?
Yes, there are a few tax benefits that often go unnoticed by homebuyers. Here are some examples:
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Deduction for Pre-Construction Interest: If you take a home loan to construct a property, the interest paid during the construction period can be claimed as a deduction. However, it is spread over 5 years, starting from the year in which construction is completed.
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Deduction for Stamp Duty and Registration Charges: These costs, incurred while buying a home, can also be claimed under Section 80C up to the ₹1,50,000 limit.
FAQs on Home Loan Tax Benefits
1. What are the tax benefits on home loan repayment?
Home loan repayments offer tax benefits under Sections 24(b) and 80C of the Income Tax Act. You can claim up to ₹2,00,000 on home loan interest under Section 24(b) and up to ₹1,50,000 for principal repayment under Section 80C.
2. How to claim tax deduction on home loan interest?
To claim tax deductions on home loan interest, you need to file your Income Tax Return (ITR) and provide details of the interest paid. You can claim the deduction under Section 24(b).
3. Home loan tax benefits under Section 80C and 24(b) explained?
Under Section 80C, you can claim up to ₹1,50,000 for principal repayment. Under Section 24(b), you can claim up to ₹2,00,000 on home loan interest for a self-occupied property.
4. Can I get tax benefits for joint home loan borrowers?
Yes, joint home loan borrowers can both claim deductions on interest and principal repayment, subject to the amounts paid and the proportionate share of the loan.
5. Tax benefits for first-time home buyers on home loans?
First-time homebuyers can avail additional benefits like deductions under Section 80EEA for home loan interest and exemptions under Section 54 for capital gains tax.
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