A Home Loan not only helps you realise the dream of owning a home but also provides tax benefits. Under various sections of the Income Tax Act, 1961, you can claim tax exemption each year and save funds.
Home Loan Tax Benefits Available Under Section 24(b) of the Income Tax Act
Section 24(b) of the Income Tax Act, 1961, deals with the rebates one can claim on the interest component of the Home Loan. Under this Section, you can claim rebates up to a maximum of Rs.2 Lakh. Section 24(b) of the housing loan deals solely with the Home Loan tax benefits available on the interest component of the loan.
Home Loan Tax Benefits Available Under Section 80C of the Income Tax Act
Section 80C of the Income Tax Act, 1961, deals with the tax deductions available on the principal component of the Home Loan. Under this Section, you can claim exemptions up to a maximum of Rs.1.5 Lakh on repayment made towards the principal component of the Home Loan. Section 80C also deals with several other tax-savings instruments and the upper limit for all these is Rs.1.5 Lakh.
Home Loan Tax Benefits Available Under Section 80EE of the Income Tax Act
If you are a first-time homebuyer, you can claim an additional Rs.50,000 as a tax deduction under Section 80EE of the Income Tax Act, 1961. However, to be able to claim deductions under this Section, you must meet certain prerequisites. To start with, you must have taken out a Home Loan either in FY 2013-14 or 2016-17. Further, you must have no other property in your name at the time of sanctioning of the loan. That apart, the value of the property must not exceed Rs.50 Lakh and the value of the loan must not exceed Rs.35 Lakh for a borrower to be eligible for tax deductions under this Section.
What is HRA?
HRA refers to house rent allowance. All employers pay house rent allowances to their employees to cover the accommodation costs. Employees who live in tier 1 or metropolitan cities get 50% of their basic salary as HRA and employees who live in tier 2 cities get 40% of their basic salary as HRA.
Can a Borrower Claim Tax Benefit on both HRA and Interest Component of the Home Loan?
You can claim tax benefits on both HRA as well as the interest component of the Home Loan. The two deductions are not linked with each other. However, you may need to provide an explanation for claiming HRA when you already have a Home Loan. Claiming HRA and deductions under Section 24(b) is easy. One can claim these deductions while filing an ITR at the end of the financial year.
A Home Loan is a long-term financial commitment. In most cases, the loan repayment period extends up to 32 years. You can use our Home Loan EMI Calculator to estimate your EMIs in advance and plan your repayment journey.
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