Home loan borrowers repaying the advance can avail tax benefits under various sections of the Income Tax Act (ITA), 1961. Check out the following income tax benefits on home loan that can help save on loan repayment.
1. Deduction of interest paid on housing loan (U/s 24B)
Home loan repayment involves EMI payments over the tenure, with each instalment comprising a principal and interest component. The total interest paid during a Financial Year is eligible for deduction during tax liability calculation. The income tax rebate on home loan is available u/s 24B of the ITA, with a maximum limit of Rs.2 lakh in case of self-occupied residential property.
For a residential property purchased with a home loan and let out, no limit is specified for how much tax benefit on home loan a borrower can avail for such annual interest payment.
If a residential property is under construction, such deduction is claimable from the year of completion of the construction.
2. Interest deduction for property under construction (U/s 24 B)
Interest deduction is also applicable for the pre-construction period if a property is under construction. However, such construction must be completed within 5 years of availing the loan.
Section 24B of the ITA allows yearly pre-construction interest deduction with total interest paid divided into 5 equal instalments within the annual cap of Rs.2 lakh. Such deduction is applicable for a duration between property acquisition and construction completion.
3. Principal component deduction (U/s 80C)
Borrowers are also eligible to avail deduction for annual principal repayment up to a limit of Rs.1.5 lakh under Section 80C of ITA. The income tax benefit on home loan is available over and above the interest deduction and is claimable with a clause that house property must not be sold within 5 years of acquisition.
4. Deductions on a joint home loan (U/s 80C)
Section 80C of ITA also allows both principal and interest component deductions for home loans availed jointly. Based on the repayment amount and individual contribution, each borrower of the joint home loan can claim standalone deductions of up to Rs.2 lakh on interest payment and up to Rs. 1.5 lakh on principal repayment.
Borrowers must also be co-owners of the purchased property to avail such deduction.
5. Deduction of stamp duty and registration fees paid (U/s 80C)
Borrowers can also avail a deduction on stamp duty and registration charges paid during a residential property acquisition within the maximum deduction cap of Rs.1.5 lakh u/s 80C. Such deductions are claimable only for the year in which the payment is made.
Additional deduction u/s 80EE also allows an annual claim on interest payment of up to Rs.50,000 for first-time homebuyers with a home loan under Rs.35 lakh and property value under Rs.50 lakh. As per the budgetary introduction in 2019, additional deduction of up to Rs.1.5 lakh is also available to first-time homebuyers u/s 80EEA if the purchased property’s value remains within Rs.45 lakh. To avail the income tax benefit on home loan, the amount must be sanctioned between 1st April 2019 and 31st March 2020. It is not applicable for individuals claiming deductions under section 80EE.
Calculation of home loan tax benefits is simple and straightforward with customised calculating tools. Bajaj Housing Finance Limited brings Home Loan tax benefit calculator to help borrowers with such computations.
An income tax calculator is an online tool that provides easy and accurate estimations of tax benefits you can claim on your home loan repayments, including principal and interest components, as well as other charges.
Enter the following few income details in the home loan tax calculator to compute the total deductions available for the concerned Financial Year.
Once provided, the calculator computes the applicable home loan deductions instantly.
Note that the income provided should be accurate to arrive at the correct result with the home loan tax benefits calculator. For instance, when entering your Gross Annual Salary, take the following additions and allowances into consideration, as applicable to your yearly remuneration.
Income from other sources must also include all or any income received via investments, deposits, etc. Use the custom tax benefit calculator to assess your yearly tax savings and plan your finances accordingly.
The following sections of the Income Tax Act, 1961 are applicable to help housing loan borrowers with tax savings on a home loan.
The section provides home loan tax deduction benefits on the interest components of EMIs paid in a year. An individual can avail a housing loan for an under construction or ready-to-move-in property and claim interest deduction on repayments thereto. The deductions applicable as per the stage of construction, nevertheless, vary. Take a look.
Home loan borrowers can claim interest deductions of up to Rs.2 lakh for a fully constructed property used for residential purpose. Tax saving on home loan does not come with a limit in case of a property purchased to let out. For a property purchased and under construction, such deduction is applicable only after the construction is complete.
Income tax deductions for annual interest paid on a home loan in the case of pre-construction period is available in 5 equal instalments. The applicability has been established in view of the rule that an under-construction residential property purchased via a home loan must be completed within 5 years from the date of loan approval.
The home loan tax Section 80C allows for the following deductions.
A maximum annual deduction of Rs.1.5 lakh is allowed for home loan principal repaid towards the total loan liability. Such deductions are applicable for every year of repayment until the loan liability is paid in full.
It is applicable only is the property is not sold within 5 years of such purchase.
The deduction limit of Rs.1.5 lakh can also include the payment of stamp duty and registration fees, claimable only for the year of such payment.
Both the deductions are also applicable to joint home loan borrowers with a maximum deductible limit of Rs.1.5 lakh available individually. The joint borrowers must be property co-owners as well to claim the deduction.
First-time home buyers can also claim an annual interest deduction of up to Rs.50,000 under Section 80EE. To claim such deduction, the property purchased must not be priced over Rs.50 lakh with the home loan amount not exceeding Rs.35 lakh.
The section allows an additional tax saving on home loan of up to Rs.1.5 lakh to first-time home buyers if the property’s stamp value remains within Rs.45 lakh. It is applicable only for home loans sanctioned between 1st April 2019 and 31st March 2020 and the borrower does not claim the benefits u/s 80EE. Or 24(b).
All joint owners of a property can claim the available home loan tax exemptions if they fulfil the set criteria. They include –
Qualifying these parameters, joint home loan borrowers can claim the following tax benefits.
The deductions are available annually until complete loan repayment and can be claimed proportionately as per the contributions made towards home loan repayment.
For joint home loans wherein the co-borrower does not contribute to the repayment liability, the total principal and interest payment can be claimed by the contributing party. It cannot, however, exceed the specified limits. Individuals can thus increase their home loan tax benefits with a joint home loan.
The process to claim tax benefits on a home loan differs with the borrower type, i.e., self-employed and salaried borrowers. To make a home loan tax benefits claim, salaried housing loan borrowers must take care of a few essential aspects.
Proceed with the following steps to claim the applicable tax benefits on your home loan repayment.
Alternatively, if they miss out on the steps, borrowers can proceed with their home loan tax claim during the annual Income Tax Return Filing for the concerned financial year as well. Make sure to obtain an interest certificate anyway for a successful claim.
For self-employed home loan borrowers, the steps are not required. They must make sure to keep the necessary documents handy when filing their annual Income Tax Return to make such a claim.
Fill up the online application form to complete the application process
What are the eligibility criteria to claim tax deductions on home loans?
To claim home loan tax deductions either on principal or interest paid, a borrower must be owner of the residential property so financed. In the case of a joint home loan, all co-borrowers can claim the applicable deductions individually if they are co-owners of the purchased property and contribute to the repayment liability. The claim amount varies as per the proportionate repayment contributions made by the co-borrowers.
Can I claim tax benefit for an under-construction property?
Yes, a housing loan borrower can claim income tax benefit on home loan repayments even when the property so purchased is under construction. Such tax benefit is available only on interest payment and any other expenses incurred during the period and is claimable in 5 equal instalments post completion of construction.
Nevertheless, for any such claims, construction of the property must complete within 5 years from the date of availing a home loan.
Can I claim tax benefit on two home loans?
Usually, home loan tax benefits are available only on a residential property declared as self-occupied. For two home loans availed to purchase separate residential properties, only one property would be considered as self-occupied.
In that case, the second property is considered let-out and tax rules apply accordingly. Thus, annual interest deductions remain unlimited for the second home loan, whereby the property is deemed let-out. Also, its consideration as a let-out property results in notional rent consideration to be added to the assessee’s total income for tax liability calculation.
Can I claim separate income tax deductions if my spouse is employed?
To claim separate home loan income tax benefits for self and spouse, property co-ownership of the latter is a prerequisite. Further, employment of the spouse must also be considered in light of his/her qualification as a taxpayer as per the total annual income.
Thus, if you and your spouse have availed a home loan jointly, assume liability for repayment separately, are co-owners of the property, and are taxable individuals, home loan tax deductions can be claimed by both separately.
Can self-employed individuals claim HRA benefit?
No, HRA benefits are not applicable to self-employed individuals. It is because HRA or House Rent Allowance is a salary component and is paid only to salaried individuals.
Self-employed individuals can, however, claim other applicable tax deductions to save on their tax liabilities, such as tax saving on home loan principal and interest payment.
What is the maximum amount one can avail for deduction of interest?
The maximum amount of home loan interest tax benefits claimable depend on the use of the property so purchased. For a residential property purchased and self-occupied, annual interest tax deductions of up to Rs.2 lakh are claimable.
In case of a residential property let out or deemed to be let-out, annual tax deductions towards interest paid come with no maximum limit.
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