8 Different Ways to Avail Tax Benefits on Home Loans

The process of repaying a home loan, or a Top-up loan availed on a housing loan, requires the borrower to repay the loan through smaller monthly instalments or EMIs. Each EMI comprises the principal sum and the interest charged on it. Both these components qualify for substantial tax benefits on home loans under the Income Tax Act (ITA), 1961. These deductions lower your tax liability and enable greater cash flow.  

Tax Benefits on Home Loans

Borrowers can claim exemptions on their housing loan principal repayment under Section 80 C and on the interest portion under Section 24 (b) of the ITA. A home loan certificate for income tax issued by the lender summarises the principal and interest amounts paid and serves as evidence of your loan repayment which proves useful while securing tax deductions.  

The tax benefits that apply to housing loans are listed in the table below: 

Income Tax Act Provision	Nature of Tax Exemption	Maximum Deduction Allowance
Section 80 C	Principal repayment	Rs.1.5 lakh
Section 24 (b)	Interest paid; provided the construction or acquisition of the property is completed within 5 years	Rs.2 lakh
Section 80 EE	Additional exemptions for first residential property sanctioned between April 2016 and March 2017	Rs.50,000
Section 80 EEA	Exemption in addition to Section 24 deduction, fetching Rs. 3.5 lakh net rebate on Home Loan interest	Rs.1.5 lakh
For joint Home Loan	Each borrower can claim concessions on Home Loan interest under Section 24 (b) and principal repayment under Section 80 C	Rs.2 lakh u/s 24 (b); combined relief up to Rs.4 lakh    Rs.1.5 lakh u/s 80 C; joint deduction up to Rs.3 lakh
Section 80 C	Stamp duty and registration charges	Rs.1.5 lakh

8 Different Ways to Avail Tax Benefits on a Home Loan

Here is a detailed look at the 8 different ways to secure tax exemptions on a Home Loan: 

1. Section 80 C Tax Benefits on Principal Amount

The quantum of loan is mainly influenced by your home loan eligibility and several other factors. One can enjoy maximum deductions up to Rs.1.5 lakh on the principal component from their taxable income each year. This is applicable for both self-occupied and rental properties as per the following provisions: 

• It includes payment of registration fees and stamp duty which can be claimed just once in the year the charges are paid. 
• You can obtain the exemptions only after the construction is complete, and not during the construction phase. 
• One cannot avail the rebate if they sell their house within five years of gaining possession. If you do, any claimed deductions will be reversed in the year of sale and the sum will be added to your income for the same. 

2. Section 24 Tax Benefits for Interest Payment

You can obtain deductions on the interest paid for a home loan under Section 24 of the Income Tax Act. The interest component is mainly determined by the home loan interest rates offered by your lender. A maximum rebate of Rs.2 lakh can be claimed from your gross income every year for a self-occupied property. In the event that you own two houses, your combined tax concession for home loans cannot exceed Rs.2 lakh in a fiscal year.  

If the property is rented out, there is no upper limit on the interest relief. The entire interest paid on your housing loan towards the purchase, construction, repair or reconstruction of the property can be claimed as tax deduction. Moreover, the losses that one may claim under the Income from House Property are permitted up to Rs.2 lakh. For the sake of adjustment, the balance loss can be carried forward for a period of eight years. 

3. Under Construction Property Tax Benefit

If you are already paying the EMIs for the purchase of an under-construction property, you can claim the interest outgo once the construction is complete. ITA permits rebates on both the pre-construction and post-construction period interest. In the case of the former, one can obtain exemptions in five equal instalments annually, beginning from the year in which the construction was finished.  

The net deductions available to individuals under Section 24 (b) towards loan interest payment is the combined sum of 1/5th of the interest during the pre-construction stage and the interest paid in the post-construction phase. 

4. Additional Deductions Under Section 80 EE

Section 80 EE allows income tax relief on the interest variable of a home loan to first-time home buyers under the following conditions: 

• This exemption will be applicable only if the property purchased is less than Rs.50 lakh while the loan amount does not exceed Rs.35 lakh. 
• The house loan should have been sanctioned between 1st April 2016 to 31st March 2017. 
• Borrowers can access the concessions from FY 2016 – 17 onwards as long as the loan repayments continue.  

5. Section 80 EEA Tax Benefits for First-Time Home Buyers

The interest paid on a housing loan is also eligible for an additional deduction up to Rs.1.5 lakh if you fulfil these requirements: 

• Borrowers must avail of a housing loan from a financial institution or housing finance company for purchasing the residential property. 
• The loan should have been approved between 1st April 2019 to 31st March 2022. 
• The cost of stamp duty for the property should not be more than Rs.45 lakh. 
• Individual taxpayers cannot claim deductions under Section 80 EE. 
• In case you own a property jointly with your spouse, and both of you make the loan payments, then the concessions may be claimed separately. 
• Resident and non-resident borrowers can take advantage of this provision. They must be first-time home buyers and should not own a property at the time of loan sanction.  
• Since this section does not specify whether the residential property ought to be self-occupied for claiming the rebates, one may include tax exemptions for a house not occupied by the owner. 

6. Joint Home Loan Tax Benefits Under Sections 24 and 80 C

When a home loan is availed with a co-applicant, each borrower can deduct their loan interest payment up to Rs.2 lakh under Section 24 (b) and principal repayments up to Rs.1.5 lakh under Section 80 C. This will double the concessions when compared to the rebates enjoyed by a single borrower. However, both loan applicants should pay their EMIs as stipulated and must be co-owners of the property.  

7. Second House Tax Benefits

Individuals who secure a housing loan to buy a second house can expect tax exemptions on the payable interest according to the current provisions in the Income Tax Act. The government has incentivised real estate purchases even further through amendments in the 2019 budget. Previously, just one property was treated as self-occupied while the other house was considered to be let out. Thus, notional rent was calculated and taxed as income. But now a second house can be deemed as a self-occupied property.

8. Exemptions on Stamp Duty and Registration Charges

Section 80 C grants deductions for stamp duty and registration fees up to Rs.1.5 lakh. However, it can be secured just once in the same year that these costs were incurred.     

How to Calculate Tax Benefits on a Home Loan?

If you wish to assess the applicable home loan tax benefits, using an online home loan tax benefit calculator is the simplest way to compute the exemptions. Just fill in your home loan information in the given fields such as: 

• Loan amount 
• Repayment tenor 
• Interest rate 
• Starting date of home loan 
• Gross annual income 
• Existing deductions under 80 C or D 

Once you enter the required details, select ‘calculate’ to view the results in a tabulated format.  

Summing Up

Home loan interest rates directly impact the cost of your loan. Keeping it within a manageable range can lower your monetary obligations and maximise the tax benefits on a housing loan. A housing loan EMI calculator lets you understand your credit cost better and manage it more effectively. Apart from this, various other investments can fetch you greater returns optimising your savings while reducing your tax liability. Remember, when it's time to do the taxes and claim the applicable deductions, access an online income tax calculator to effortlessly compute your taxes payable in the current financial year.