Home Loan Tax Benefits in India

home loan

Everyone will have a dream of owning their dream house! There are a lot of schemes which our Indian government has initiated for encouraging citizens to invest in buying a house. That is the main reason the home loan is eligible for a tax deduction in the Indian Income Tax Section 80C. When you apply for home loan, you will get many tax benefits that will significantly reduce your tax.

The Indian government’s Pradhan Mantri Jan Dhan Yojana is giving a lot of accessibility and affordability for the households in India. As per that scheme, you will get a certain amount for your house depending upon your class and other criteria. So now you don’t have to worry about getting a home loan when you need it.

Income tax benefits on home loan:

Sections in the IT ActNature of home loan deduction in income taxMaximum amount deductible
Section 80CTax deductions on the principal repaymentRs. 1.5 Lakh
Section 24Tax deductions on the interest amount payableRs. 2 Lakh
Section 80EEAdditional home loan interest for tax benefit for first-time homebuyersRs. 50,000

The tax benefit for a home loan was Rs.2 Lakhs. But, now it has been increased by Rs.1.5 Lakhs making it Rss.3.5 Lakhs. Income tax benefits for a home loan will come under section 80EE, 80C and24. There is a special section for PMAY CLSS scheme which is section 80EEA. The government announced this scheme for making people feel more confident for opting a home loan.

The sections under which you can avail these, and its limit will all be discussed below.

When you opt for a home loan, you will have to pay monthly repayments of your loans through EMIs. Also known as Equated Monthly Instalments, these monthly payments will include both the principal and the interest at which you opted the loan. The Income Tax Act does allow loan beneficiaries to enjoy tax benefits.

Section 80C:

Under this section, you can claim up to Rs.1.5 Lakh as a deduction from your taxable amount. This option includes stamp duty and registration charges as well but can be used only once. You can opt this for the property only when you invest in a completed project. Both you and your co-signer can avail this tax benefit individually.

Read AlsoTax Benefits of Income-Tax Act – Section 80 C

You shouldn’t sell the house within five years from the date of possession. If you do so, your deduction will be reversed in that year.

Section 24:

The maximum deduction you can get under this section is up to Rs.2 Lakhs on the interest payable on the home loan. This tax benefit can be claimed only when the construction of the property is finished  within five years. If not, you can claim only up to Rs.30,000.

Section 80EE:

The first time home buyers can claim Rs.50,000 additional to the interest payable every financial year. Under this section, you should have a home loan principal amount of a minimum of Rs.35 Lakhs and to a maximum of Rs.50 Lakhs.

Section 80EEA:

Under section 80EEA, homebuyers can now get an additional deduction up to Rs.1.5 Lakhs. The stamp value of the house shouldn’t exceed Rs.45 Lakhs for this tax deduction. The home loan should have been sanctioned within that financial year. The individual shouldn’t have any other property on his name. The individual shouldn’t opt for section 80EE.

Process for availing tax benefits on home loan:

Get documents ready:

When you apply for a home loan, you should submit certain documents for claiming the Income Tax benefits. Make sure to get all the documents prepared before you go for applying for a loan.

The required documents include the following:

Income proof:

You will be required to submit proofs related to your income like your payslips, bank documents and other things. These will let the Income Tax administration know how much tax benefit you can claim.

Ownership details:

The loan borrower should submit the details related to the property for claiming the tax benefits. The co-applicants of the loan can also get the full tax benefit separately under their name.

Property purchase confirmation:

You will also be submitting the final property purchase-related documents when you look for tax benefits. You can claim tax for property which has completed its construction within that year.

Borrower details:

You will have to submit ID proof and address proof related to you for claiming tax benefits. You will need to provide your co-signers proofs as well when you are getting a joint home loan.

Certificate of loan:

You should provide the certificate regarding your principal loan amount and its interest which is given by your loan provider. This certificate will help a lot in calculating your tax benefits under different sections.

Calculate the amount of tax benefit you can avail:

You should calculate the total amount of tax you can claim before filing an Income Tax return. There are many online tax benefit calculators for a home loan to determine the amount you avail with your tax.

Home loan tax benefits for owning a second property:

As per the current law, when you have more than one property on your name, you can claim tax benefit only for one. For the other property, you will have to pay the tax based on the national rental scheme. You will get a benefit for choosing any one of the properties which might need for maximum tax payment.

HRA and tax benefits:

When you are already staying in a house for rent and have a home loan on a property which you will own shortly, you can’t get a claim of tax for your loan. But you can claim HRA (House Rent Allowance) for paying your monthly rent. Only when you are residing in the house, you have mentioned as the rented one you can claim this tax. You can’t argue when your dependent family stays in a home without you. You can claim HRA depending upon the lowest value of:

  • The definite HRA you receive from your employer
  • 50% of your salary when you live in a metro city or 40% in other cities
  • 10% less from your actual salary

Steps to claim tax benefits on home loans:

With some easy steps below, you can claim your tax benefits on your home loan:

  • Calculate tax benefits to be claimed.
  • The house should be in your name, or you should be one of the co-signer for the loan
  • Home loan interest certificate from your employer for adjusting the TDS (Tax Deductible at Source)
  • When you forget the above step, you should file for an income tax return.
  • When you are a self-employed individual, you will not require these documents.

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