Other than helping people afford the home of their dream, Home Loans also come with Home Loan tax benefits and help homebuyers save a lot of money each year in the form of housing loan tax exemptions. A Home Loan borrower can claim deductions under various sections of the Income Tax Act. Before we answer the main question here, let us look at the different types of deductions that Home Loan borrowers can claim each financial year.
Home Loan Tax Benefits Available Under Section 24(b) of the Income Tax Act
Section 24(b) of the Income Tax Act deals with housing loan rebate that one can claim on the interest component of the Home Loan. Under this section of the Income Tax Act, borrowers can claim rebate 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 deals with Home Loan income tax deductions available on the principal component of the loan. Under this section of the Income Tax Act, borrowers can claim exemptions up to a maximum of Rs.1.5 Lakh on payments made towards principal component repayment of the 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
First-time homebuyers can claim an additional Rs.50,000 as tax deductions under Section 80EE of the Income Tax Act. However, to be able to claim deductions under this section of the ITC, a borrower must meet certain prerequisites. To start with, the borrowers must have taken out a Home Loan either in the financial year 2013-14 or 2016-17. Further, the borrower must have no other property on their 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 of the ITC.
What is HRA?
HRA refers to house rent allowance. All employers pay house rent allowance to their employees. HRA helps cover the accommodation cost of the employee. 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 on the Interest Component of the Home Loan?
Borrowers can claim tax benefit on both HRA as well as the interest component of the Home Loan. The two deductions are not linked with each other and therefore, there is no clash between them. However, a Home Loan borrower or an employee may be required to explain to the income tax officials why a person is staying on a rented apartment and claiming HRA when they already have a Home Loan. So, one must be prepared with answers if they get questioned. Claiming HRA and deductions under Section 24(b) is easy. One can claim these deductions while filing ITR at the end of the financial year.
A Home Loan is a huge financial commitment. In most cases, the loan repayment period extends up to 30 years. Therefore, it is a financial commitment that goes on for years. Borrowers must use a Home Loan EMI calculator to work out their EMIs in advance and plan their repayment journey. Knowing one’s EMIs in advance also helps one with monthly budget planning as well as planning repayments.
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