The Government has introduced several benefits to home buyers to ensure homeownership is accessible to most citizens of the country. One of the most significant advantages of owning a house is the home loan tax benefit.

Borrowers can avail various tax benefits on the investments done over the years. Among them, a home loan tax benefit is a long-term investment that will provide an exemption for an extended period. Keep reading to learn more about income tax benefits on housing loans and how to acquire them.

Deductions available in different sections of Income Tax Act 

To avail of home loan income tax benefits on a home loan, it is essential to be aware of them as they can save significant tax payments. Here’s take a look at the deductions below:

Tax deduction on principal repayment

Under Section 80(C) of the IT Act, borrowers can avail of tax deductions of up to Rs.1.5 lakh per financial year on principal repayment. Here are some of the essential pointers to consider when availing of tax benefits:

  • As per this section, a deduction is only applicable on fully constructed houses or after the construction of houses is completed by the buyer.
  • Next, the buyer must not sell the property within 5 years of possession. In case he/she does, any claimed tax benefit will be included under their income and taxed accordingly.
  • Apart from these, borrowers can avail of exemption on registration and stamp duty charges. However, they can claim for housing loan tax exemption once a year, which will be included within the Rs.1.5 lakh loan limit.

However, note that the home loan tax benefit is applicable for both self-occupied and let-out property. In the latter case, tax exemption is applicable for property owners residing in a different city.

Tax deduction on interest payment

Under Section 24(B), borrowers are eligible to avail of deduction on interest payment if the property is self-occupied or under construction. Here, borrowers can avail of a home loan rebate in income tax of up to Rs.2 lakh. 

Besides, a home loan obtained for renovation, repair or construction of a house is applicable to claim tax benefits of up to Rs.30, 000.

However, borrowers must note that there is no certain limit for tax exemption on interest component in case of let out properties. Apart from home loan tax exemptions and benefits that every borrower should know, they must know about the additional tax benefit on interest payments of up to Rs.50, 000/annum under certain circumstances, and they are:

  • The borrowed loan amount must be within Rs.35 lakh
  • The value of a property should be within Rs.50 lakh
  • Must be residential property
  • Credit must be taken for first-time home purchase

Tax deductions on joint home loan

The tax benefits on a joint home loan include all the aforementioned benefits in substantial proportions. In other words, each co-borrower can claim tax deductions separately, thereby leading to an overall double tax benefit. However, both co-borrowers must be co-owners of the respective property to claim the home loan tax benefit.

Form the above-mentioned list, evaluate the combination of home loan tax deduction and calculate by taking help of a home loan tax saving calculator. After calculation, borrowers can proceed with the ITR process.

However, apart from these, borrowers must learn about the additional documents that are required for the applicants to claim home loan tax benefit.

  • Loan document certificate
  • Completion of home construction document
  • The loan should be in the name of tax payer
  • Proof of municipal taxes paid last year

Besides, existing home loan borrowers can also get the benefit of pre-approved offers extended by leading financiers on a range of financial products, such as loans against property, home loans, etc. By availing of these offers, borrowers can dodge the hassle of extensive documentation and accelerate the loaning process. Therefore, existing borrowers can also check their pre-approved offers by submitting their names and contact details.

To conclude, a home loan tax benefit can ensure substantial savings for potential home buyers and alleviate their burden on paying off their home loan costs. By knowing about these deductions, borrowers can reduce their financial burden and maximise tax savings.

Read Also: 6 Tips to Guarantee Personal Loan in India