Home Loan Tax Benefit Save tax on home loan Know 4 ways to take advantage of exemption

Home Loan Tax Benefit Save tax on home loan Know 4 ways to take advantage of exemption

 If you are looking to buy a new home, then there is good news for you. The Government of India is giving you an additional tax benefit of up to Rs 1.5 lakh.

In Budget 2019, the government has brought a new section, section 80EEA.

You will get an additional tax benefit of Rs 1.5 lakh on payment of interest on home loan under section 80EEA. Note this is in addition to the tax benefit of 2 lakh (home loan interest payment) available under section 24. But there are certain conditions for availing tax benefits under 80EEA.

Tax Benefits on Home Loan

aking 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.

Union Finance Minister Nirmala Sitharaman in the budget speech proposed to extend the deadline for availing additional deductions on interest payment on home loans to 31 March 2022. This comes after the government had in the previous budget extended the deadline to 31 March 2021.

 

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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.

 

 

Home Loan Tax Benefit

Tax Benefits on Home Loan (FY 2021-22)

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

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• What are the conditions for tax benefit under section 80EEA?
• You have to fulfill these conditions for additional tax benefit of Rs 1.5 lakh under section 80EEA.
• You get this tax benefit on payment of interest on home loan.
• Your home loan should have been sanctioned between 1st April 2019 and 31st March 2020.
• The value of your house (Stamp Duty Value, Stamp Duty Value) should be up to Rs 45 lakh.
• There should not be any house in your name while taking the loan.
• You can see that this new tax benefit is only for first time home buyers.
• You will not get this tax benefit only in FY2020. Will continue to get Just you fulfill the above conditions.

A tax benefit of Rs 2 lakh is available under section 24 on the interest paid on the home loan. This new tax benefit (Section 80EEA) is an additional tax benefit.

If you fulfill all the conditions, then you can get tax benefit of up to Rs 3.5 lakh on the interest paid in aggregate.

 

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Home Loan Tax Benefit

What is the difference between the tax benefits of section 24 and section 80EEA?

Both the tax benefits are available on payment of home loan interest.

Tax benefit up to Rs 2 lakh is available under section 24. Under section 80EEA, you get tax benefit up to Rs 5 lakh.

Section 24 is available on all home loans. Only certain home loans are eligible under section 80EEA. The details of all the conditions are given above.

You can avail benefits under section 24 only when the construction of your house is complete or you have got possession. There is no tax benefit for an under construction property. However, you can avail the benefit of paying interest at the time of construction in 5 equal installments (after the completion of construction). There is no construction completion condition for section 80EEA tax benefit.

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 Buget 2021-2022)

Here are updates from the latest budget presented by Union Finance Minister Nirmala Sitharaman on 1 February 2021:

• 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 2022.
• New tax exemption proposed for the notified Affordable Rental Housing Projects to promote supply of Affordable Rental Housing for the migrant workers.

 

 

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Home Loan Tax Benefit

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

• Proposal has been made to increase income tax benefits by Rs.1.5 lakh on interest payments
• You can avail deductions of up to Rs.3.5 lakh
• 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.

 

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.

 

Home Loan Tax Benefits of Owning a Second Property

As per the current provisions, tax benefits are applicable on payable interests. 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.

 

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Home Loan Tax Benefit

How to Claim Tax Benefits on Home Loans?

Claiming tax benefits on 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 if in case the IT department raises queries in the future.

 

Home Loan Tax Benefit

How to Calculate Tax Benefits on Home Loan?

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:

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

Home Loan Tax Benefit

FAQs:

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 exemptions 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 for 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 instalments 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.

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5. Can I claim tax benefit 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 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 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.

 

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

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.

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 benefit on the principal repaid on a housing loan?

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

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

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.

 

 Budget 2020: New tax slabs have been announced for income tax payers in the budget. However, it has been kept optional for now. That is, taxpayers can also pay their tax liability under the existing tax regime. Under the current tax regime, if the annual income of a salaried income tax payer is more than Rs 2.5 lakh, then it comes under the purview of income tax. However, due to the increase in rebate benefit, income up to Rs 5 lakh has now become tax free. The Income Tax Act allows tax deduction by various sections to both the individual taxpayer and the companies. Such options are available for the salaried class. Individual salaried class taxpayers under various sections can save income tax through investments and expenses such as small savings schemes, NPS, loans, donations, children's fees, parents' treatment or insurance, etc.

 These also include home loans in which you can save tax under several sections. If you have taken a home loan, then it is important to take care of them.

Home Loan Tax Benefit

Section 80C: Exemption up to Rs 1.5 lakh

One can claim tax exemption of up to Rs 1.5 lakh under section 80C on the repayment of the principal amount of the home loan. Home loan can be taken for the purchase or construction of a residential property. Remember that the construction of the property should be completed within a period of 5 years from the end of the financial year in which you have taken the loan. Also, if the property is transferred or sold within 5 years, the tax deduction claimed will be re-added to your income in the year of sale and then taxed as per your existing tax slab.

 

 Section 24B: Exemption up to Rs 2 lakh

Interest on home loan is divided into two categories- interest before construction and post-construction interest. Tax deduction up to Rs 2 lakh is available under section 24b of the Income Tax Act for the interest paid during the period after the construction is completed. There is no upper limit for claiming interest deduction on rental property. This deduction can be claimed only from the year in which the construction of the house is completed.

Most of the people take home lane for under construction property and get possession of it later, but the home loan repayment starts immediately after taking the loan. For such persons, tax deduction can be claimed up to 5 years (in 5 equal installments) on interest for the period up to 5 years for the period before completion of construction under section 24b.

Keep in mind that there is a maximum upper limit of Rs 2 lakh that can be claimed.

 Section 80EEA: Exemption up to Rs 1.5 lakh

In the 2019 budget, an additional exemption of Rs 1.5 lakh was announced on payment of interest on home loans taken between April 1, 2019 and March 31, 2020. For tax exemption under section 80EEA, the value of the property should be up to Rs 45 lakh. This benefit can only be availed by a first time home buyer. In Budget 2020, the benefit of this section has been extended for one more year and now the benefit of tax exemption under this section will be available till March 31, 2021.

 

 Section 80C: Deduction on stamp duty and registration charges

You can claim tax benefits on stamp duty, registration charges and other expenses incurred while buying the property. For this, you can claim a limit of up to Rs 1.5 lakh under section 80C. This can be done in the same year in which your expenses are incurred.