A Guide to Avail Tax Benefits on Home Loans
Home Loans help you fulfil one of your most cherished dreams - buying your dream home. As a buyer, you have more choices than before to choose your home and select your lender for funding it. However, there’s another aspect of Home Loans that makes them an attractive proposition. It’s the tax benefits on offer.
Let’s understand the various tax benefits on Home Loans that you can avail that help you lower your tax outgo.
Tax Benefit on Principal Amount of Home Loan
The EMI you pay towards your Home Loan has two components - principal and interest. Home Loan income tax rebate is allowed on both these components. Under section 80C of the Income Tax Act, 1961, you can enjoy a maximum tax rebate of INR 1.5 lakhs on Home Loan principal.
It’s essential to note that investment in other financial instruments such as public provident fund (PPF), tax-savings fixed deposits, national savings certificate, etc., also qualify for tax exemption under section 80C. The combined limit of all the deductions is INR 1.5 lakhs.
You can claim tax benefit on the principal amount of Home Loan on a payment basis, irrespective of the year for which you have made the payment.
Conditions to Claim Tax Benefit on Home Loan Principal
However, tax benefit on Home Loan principal is allowed only after completion of construction. You can’t claim deductions for the principal amount paid during the years under which the property was under construction.
Also, if you sell your home within 5 years, from the end of the financial year from which you’ve obtained possession, you can’t claim any tax deduction. In such a case, the total amount claimed as a deduction in the previous years will be deemed as your income, and you will have to pay tax on it.
Tax Benefit on Home Loan Interest
Now, let’s understand the tax benefit on Home Loan interest you can receive under section 24 of the Income Tax Act, 1961. The maximum deduction on Home Loan interest you are entitled to is INR 2 lakhs. An essential thing to note is that tax benefit on Home Loan interest is available on a payable basis. It means even if you’ve not made any payment during the year, you can claim tax benefit.
Things to Note
Note that if the property is not completed within 5 years from the end of the fiscal in which you have taken the loan, the quantum of interest benefit comes down drastically to INR 30,000 from INR 2 lakhs.
The table below summarises the tax benefits on Home Loans under section 80C and 24:
| Particulars | Section 80C | Section 24 |
| Deduction Allowed On | Principal | Interest |
| Property Type | Only residential | Any real estate |
| Deduction Basis | Paid | Payable |
| Amount of Tax Deduction | INR 1.5 lakhs | INR 2 lakhs |
| Loan Purpose | Purchase/construction of a new home | Repair/purchase/construction/ renewal of a housing property |
Tax Benefit on Home Loan for First-time Buyers
If you are a first-time home buyer, there are more benefits on offer under section 80EEA. You can claim an additional tax benefit of INR 50,000 on the interest paid towards your Home Loan, up and above INR 2 lakhs. However, to claim this benefit, the below conditions must be fulfilled:
The property’s stamp value should be less than INR 45 lakhs
The loan sanction date must be between 1st April 2019 and 31st March 2022
It’s essential to note that the deductions mentioned above are applicable only if you have opted for the old tax regime. If you have switched to the new tax regime announced in the Union Budget 2020, you will have to forgo these exemptions.
At the same time to claim the deductions, you need to furnish a statement provided by your lender that indicates the amount paid towards principal and interest. After claiming the deductions mentioned above, you need to pay tax on your balance income based on the income tax slab rates.
You can use Home Loan income tax benefit calculators available online to know the deduction you can claim towards your loan.
Things to Note While Opting for Home Loans
Now that you know the tax benefits on Home Loans, you need to be mindful of certain things before availing this all-important loan. Note that Home Loans are long-term commitments, and hence you must judiciously choose your lender. Before signing the loan papers, factor in the:
Lender’s reputation
Rate of interest on offer
Repayment flexibility
Sanction and disbursal process
Eligibility criteria
Facilities such as parallel funding
Also read the fine print carefully to know the various costs to make a well-informed decision.
Godrej Capital is the financial services arm of Godrej Group which offers home loans, Loan Against Property and other secured loans. With innovative products and offerings, customers can get hassle-free loans on easy terms and conditions. Click here to know more about the offering.
Disclaimer: The above information is for illustrative purpose only. For more details, please refer to the product or service document and/or connect with our customer representative prior to making any financial decision.
