Home loans provide convenient sources of finance when one seeks to purchase a house. With a wide array of home loan providers and housing loan schemes available in the market today, home loan borrowers may be spoilt for choice. In addition to this, the Indian government makes it even easier to fund your dream house by offering several home loan benefits through tax deductions under the Income Tax Act, 1961. This gives a further impetus to aspiring home owners encouraging property investments. 

Components of a Home Loan Repayment

A housing loan repayment is based on two important components: 

  • Home loan principal amount
  • Home loan interest payment

Borrowers can avail of various home loan tax benefits on both these components under Section 80 C and Section 24 (b) of the Indian Income Tax Act. 

Five Tax Saving Benefits of a Home Loan in India

There are five crucial tax saving rebates that can be claimed on a home loan as given below:

  1. Deductions on Home Loan Principal Repayment

Under Section 80 C, one can enjoy tax deductions up to a maximum of Rs. 1.5 lakh for the repayment of the home loan principal component. For this, the following conditions must be met:

  • These deductions are not permitted while the house is still under construction. Instead, the deductions can be claimed only after construction for which a Completion Certificate must be furnished. The construction should be completed within five years from the end of the financial year when the home loan was obtained. 
  • One cannot transfer the property for a minimum of five years after gaining possession. If it is sold within this period, the tax rebates secured until then would be reversed and added back to your income in the year of sale. You would then have to pay taxes on that amount as applicable.
  1. Deductions on Interest Paid After Construction

As per the housing loan interest tax rebates under Section 24 (b), borrowers can enjoy reductions up to Rs. 2 lakhs for a self-occupied property. This includes the interest component of the EMI paid during the financial year. If you have let-out or rented your house, there is no upper limit for claiming home loan interest tax advantages. Thus, you can get the benefit of the entire amount paid as interest. But in case, the home owner resides in another place, the maximum tax reduction allowed will be Rs. 2 lakhs. This can be claimed from the year in which the house construction is completed.

  1. Reductions on Interest Paid Pre-Construction

Usually, borrowers secure home loans and start paying off the loan EMIs even before they get possession of the property as it may yet be under construction. Section 24 (b) lets you enjoy tax benefits from the time of obtaining a home loan right until the end of your building construction. This deduction can be claimed on the loan interest paid during the pre-construction stage for a period of five years. 

  1. Rebates on Stamp Duty Fees

Section 80 C permits you to avail of a one-time rebate of maximum Rs. 1.5 lakh towards stamp duty and registration charges of your property. This tax deduction can be claimed in the same year of incurring these expenditures.

  1. Tax Savings on Joint Home Loans

You can take a joint home loan with a member of your family; which may include either your spouse, parent, children or sibling. This not only enhances your home loan eligibility but also provides ample tax savings. 

In such cases, each loan applicant can individually enjoy home loan tax benefits to the tune of Rs. 1.5 lakh under Section 80 C on principal repayment; and up to Rs. 2 lakhs under Section 24 (b) on the interest component. However, to claim these deductions, both beneficiaries should also be co-owners of the concerned property for which loan has been obtained. This way, borrowers can enjoy substantial tax relief on their home loans.

Additional Income Tax Rebates on Home Loans

There are other home loan tax cuts that borrowers can take advantage of, over and above the housing loan benefits already mentioned. These are as follows:

  1. A) Tax Relief Under Section 80 EE

One can get additional deductions under Section 80 EE up to Rs. 50,000; provided the loan amount is Rs. 35 lakhs or less and the value of the house is not more than Rs. 50 lakhs. But the primary condition herein specifies that one must be a first-time home owner and should not hold any other property in his/her name.

  1. B) Tax Cuts Under Section 80 EEA

If the stamp value of the property does not exceed Rs. 45 lakhs, you can enjoy tax rebates up to Rs. 1.5 lakh under Section 80 EEA. However, this is applicable only on home loans sanctioned between 1st April 2019 and 31st March 2020. Also, the borrower must not own any other house as on the date of loan sanction. If you claim reductions under Section 80 EE, you are not deemed eligible for any benefits under Section 80 EEA. 

  1. C) Income Tax Savings on a Second Home Loan

Individuals can claim this deduction upon availing their second home loan, only on the interest amount of their loan. At present, you can get home loan tax benefits for just one property, which is self-occupied, and conduct tax repayments basis notional rent.

  1. D) Home Loan Tax Benefits for Senior Citizens

Special tax rebates on home loans are extended to senior citizens as well. The cap on Section 80 C and Section 24 (b) reductions have been raised to Rs. 2 lakhs and Rs. 3 lakhs respectively for senior loan borrowers.

Summing Up

Availing a home loan warrants extra financial responsibilities. At the same time, it also offers several advantages through the home loan tax benefits that all home loan borrowers can easily enjoy. This enables you to not just save on taxes, but also brings down the overall cost of your home loan, despite what the current home loan interest rate may be pegged at. Borrowers can make use of a home loan calculator to understand their actual cost of credit. Furthermore, they can claim tax rebates even if they switch lenders when opting for a home loan balance transfer.