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Tax Benefits on Home Loans You’re Unaware Of

  • Nov 11, 2019
  • VIEWS: 10695

Every once in a while, we all desire to buy that dream house of ours. But with increasing property prices, it only remains a dream. However, with numerous banks and financial institutions offering variations for a home loan, you can make the most of buying that home and saving at the same time. When you apply for a home loan, not only can you make the most of a higher sanction amount by meeting all the specific requirements, but also enjoy tax benefits on home loan

During the 2019 Budget, The Government introduced to increase the tax benefits by INR 50,000 through Section 80EE for first time home buyers. With a total taxable exemption of INR 4 lacs, your tax exemption on a home loan has only increased.  

We have curated a table for your ease of understanding the various Sections of the Income Tax Act that are available to claim tax exemptions

Sections in the IT Act

Nature of home loan deduction in income tax

Maximum amount deductible

Section 80C

Tax deductions on the principal repayment

Rs. 1.5 Lakh

Section 24

Tax deductions on the interest amount payable

Rs. 2 Lakh

Section 80EE

Additional home loan interest tax benefit for first-time homebuyers

Rs. 50,000

Once you avail a home loan, you have to repay the principal amount together with equated monthly instalments (EMIs) depending on the structure and tenure of the loan. The Government through the Income Tax Act of 1961 has made it efficient and affordable for the borrower to make the most of the tax exemptions

Here’s how you can make the most of the income tax benefits on home loan.

Home Loan Tax Benefits on Repayment of Principal Amount  

Under Section 80 C of The Income Tax Act of 1961, your entitlement to tax exemption on the repayment of the principal amount of your home loan is a maximum amount of INR 1.5 lacs. Moreover, you can also claim the amount of Stamp Duty and Registration charges up to the permissible amount of INR 1.5 lacs. A prerequisite of this Section is that you can’t sell the house within the first five years from the possession of the house. In case you sell the home, the tax benefit is added to your taxable income for the financial year of sale of the property. 

 Housing Loan Tax Benefits on Repayment of Interest Amount

Under Section 24(b) of the Income Tax Act, you can claim an amount up to INR 2 lacs on the interest amount paid on your home loan. It is for purchase, construction, repair or renovation of the property for which the home loan is obtained. The tax deductions can be claimed on an annual basis even if the interest amount was not paid in that financial year, but have paid the interest amount in excess in the preceding year. 

The income tax benefits for an amount of INR 2 lacs are permissible on properties whose construction is completed within five years. In case the tenure of completion is not met, the amount for tax benefit is reduced to only INR 30,000 per financial year.

Tax Benefits on Home Loan for first-time buyers

If you are a first-time buyer of a property through a home loan, avail an additional tax benefit of INR 50,000 in a financial year over and above the tax exemptions under Section 80 C and Section 24(b) of The Income Tax Act until the loan is repaid. Section 80EE can be utilised for tax benefits when you purchase your first residential property. However, there are a few stipulations to keep in mind to make the use of this exemption:

  • The property value should be less than or equal to INR 50 lacs
  • The home loan amount should be less than or equal to INR 35 lacs
  • On the date of home loan sanction, you should not have owned any other property
  • Sanction of the loan should be by a bank, financial company or housing finance company

Additional Provisions to avail home loan income tax benefits

  • Tax benefit or exemption is valid only when you purchase a ready to move in property, or the construction is complete. 
  • You can claim these tax exemptions year on year until you complete the repayment of the principal and interest amounts. 
  • In case of sale of the property within five years of the purchase date or possession of possession, the claim and benefits are not applicable, and the sale amount is added to your taxable income. 
  • In case you let out your property on rent. No maximum amount is pertinent to claim as home loan tax benefit. 

When you take a home loan through any financial institution, you can check the home loan tax benefits,  through their tax benefit calculator to make the most of the monies you spend to purchase your dream home. 


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