Home Loan Tax Exemption: How To Save Money On Your Home Loan

Introduction

Owning a home is a dream for many Indians, and fortunately, taking a home loan can provide more than just a roof over your head. It can also offer significant housing loan tax benefit. The Indian government recognises the importance of promoting home ownership and has introduced provisions in the Income-tax Act, 1961 that allow you to save on taxes through home loan tax exemption.

Here, we will explore the different sections of the Income-tax Act that provide tax benefits for home loans.

Deductions under section 80C for principal repayment

When it comes to repaying your home loan, every installment contributes towards two aspects: principal repayment and interest payment. Under Section 80C of the Income-tax Act, you can claim a housing loan tax rebate of up to Rs 1.5 lakh for the principal amount repaid in a financial year. Using a home loan EMI calculator can help you plan your repayments more effectively.

To avail of this deduction, ensure that you do not sell the house within five years of possession. If you do sell within this period, any previous deductions claimed under Section 80C will be added back to your income in the year of sale.

Deductions under section 24(b) for interest payment

Alongside the principal repayment, the interest component of your home loan EMI is also eligible for tax benefits. Under Section 24(b) of the Income-tax Act, you can claim a deduction of up to Rs 2 lakh per annum on the interest paid on your home loan.

For self-occupied properties, this limit of Rs 2 lakh applies. However, if you have a let-out property, there is no upper limit for claiming home loan tax exemption on interest. This means that you can claim a deduction on the entire home loan interest paid.

It's important to note that if the construction of your house exceeds five years from the end of the financial year in which the loan was taken, the maximum home loan interest tax deduction will be limited to Rs 30,000 per year. Nonetheless, any overall loss can be claimed under the head 'Income from House Property' against any other head of income up to Rs 2 lakh only.

Deduction for pre-construction interest under section 24(b)

What if you buy an under-construction property and start paying EMIs even before its completion? The Income Tax Act allows you to claim deductions on pre-construction interest as part of your housing loan tax benefit.

The pre-construction interest is deducted in five equal instalments starting from the year the property is acquired or construction is completed. However, the maximum eligibility for this deduction remains capped at Rs 2 lakh.

Deduction for stamp duty and registration charges under section 80C

Apart from principal repayment, you can also claim deductions under Section 80C for stamp duty and registration charges. This deduction falls within the overall limit of Rs 1.5 lakh available under Section 80C.

It's important to note that this deduction can only be claimed in the year these expenses are incurred. Suppose you paid Rs 1 lakh as stamp duty and registration charges while purchasing your house. You can claim this amount as a deduction under Section 80C, reducing your taxable income.

Additional deductions under sections 80EE and 80EEA

The Indian government has introduced additional sections to further incentivise home ownership. Under Section 80EE, first-time homebuyers can claim an additional deduction of up to Rs 50,000 on the interest paid on home loans if certain conditions are met. These include a loan amount of Rs 35 lakh or less and a property value not exceeding Rs 50 lakh.

Additionally, Budget 2019 introduced Section 80EEA to provide further relief to homebuyers. Under this section, individuals can claim an additional home loan interest tax deduction of up to Rs 1.5 lakh on the interest paid on home loans if certain conditions are met. The stamp value of the property should not exceed Rs 45 lakh, and the individual should not be eligible to claim a deduction under Section 80EE.

Conclusion

Home loan tax exemption can help reduce your overall tax burden, and hence, understanding the housing loan tax benefit associated with home loan is crucial for every aspiring homeowner. By choosing a loan with a favorable home loan interest rate, you can maximize your tax benefits and savings.

If you are looking to buy your dream home, Mahindra Finance can help you in your financial journey. We know that every dream home is different, and so is every homeowner's financial situation. At Mahindra Finance, we perfectly understand this and provide customised solutions tailored to your specific needs.

FAQs

1) How do I claim home loan tax benefit?

To claim home loan tax benefit, keep all necessary documents ready and submit them to your employer for TDS adjustment if you are a salaried employee. Calculate your income from house property, file your ITR, and claim deductions on interest and principal repayment.

2) Who can claim tax deductions on housing loans?

The property owner is eligible to claim housing loan tax benefit. If the spouse is a co-borrower, they can also apply for tax deductions based on their respective shares of the loan payments.

3) Can I change my home loan EMI amount after availing of a home loan?

Yes, you can request to change your home loan EMI amount after availing a home loan. However, it is subject to the terms and conditions set by your lender.

4) Can my spouse claim a housing loan tax rebate when we buy the house jointly?

Yes, both you and your spouse are eligible for a housing loan tax rebate based on your respective share in the loan payments.