5 Smart Ways to Save Tax and Other Benefits on Home Loan

5 Tax Savings and Other Advantages You Can Get When You Apply for Home Loans_WC

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5 Tax Savings and Other Advantages You Can Get When You Apply for Home Loans_WC

6 min 14 Feb 2024

Highlights:

Tax Saving Home Loan Principal and Interest Repayment
Tax Exemptions on Affordable Housing
Tax Deductions on Joint Home Loans

A Home Loan can be a convenient and secure way of funding the purchase of a home. Home Loans also offer certain tax advantages that allow borrowers to save a considerable amount of funds by way of tax savings.

In this article, we share with our readers tips on how they can save tax through a Home Loan.

Tax Saving Advantages on Home Loan Principal and Interest

Home loans are repaid through Equated Monthly Instalments (EMIs), which consist of principal and interest components. It has become easier for those who have availed of a Home Loan to save funds through tax benefits on both components separately as mentioned below.

1. Tax Savings on Home Loan Principal Repayment

Section 80C of the Income Tax Act of 1961 deals with tax savings on the principal component of the Home Loan. This section of the Income Tax Act states that a borrower can claim deductions up to a maximum of Rs.1.5 Lakh on payments made towards repayment of the principal component of a Home Loan.

Borrowers must also know that if they have two homes and they have taken a Home Loan against both homes, they can claim tax exemption on the amount spent towards principal repayment for both Home Loans. However, the total tax exemption one can claim cannot exceed Rs.1.5 Lakh in a year. Further, Section 80C of the Income Tax Act also deals with other tax-saving options, such as EPF, PPF, ULIP, and ELSS savings and the combined limit for all these tax-saving investments is Rs.1.5 Lakh.

2. Tax Savings on Home Loan Interest Repayment

Section 24(b) of the Income Tax Act of 1961 allows tax deductions on payments made towards interest repayment. Under this section of the Income Tax Act, one can claim tax benefits up to a maximum of Rs.2 Lakh on payments made towards interest repayment. If a borrower has two homes and both homes have been funded through a Home Loan, the borrower can claim tax exemptions on payments made towards interest repayment of both. However, the total exemption cannot exceed Rs.2 Lakh in a financial year.

3. Additional Tax Saving Measures Implemented in 2016-2017

In the financial year 2016-2017, the government of India reintroduced Section 80EE of the Income Tax Act. Under this Act, borrowers can claim an additional deduction ranging up to a maximum of Rs.50,000. However, to be able to claim this deduction, the borrower must meet certain terms and conditions. To start with, they must have taken a loan between 1st April 2016 and 31st March 2017. Further, the value of the property must not exceed Rs.50 Lakh and the loan amount shouldn't exceed Rs.35 Lakh. If you meet these qualifying criteria, you can claim an additional Rs.50,000 as tax deductions.

4. Tax Deductions on Affordable Housing

If you have invested in affordable housing, you can claim an additional tax exemption of up to Rs.1.5 Lakh on payments made towards interest repayment of the Home Loan. This tax deduction is over and above the tax exemption mentioned under Section 24(b) of the Income Tax Act.

However, certain conditions must be met for a person to be able to claim deductions under this Section of the Income Tax Act. To start with, to claim a deduction under this category, you must have taken a Home Loan between 1st April 2019 and 31st March 2020. Further, the stamp duty charges for the property against which the loan has been taken must not exceed Rs.45 Lakhs. Over and above this, only those borrowers can claim tax benefits under this category who do not own any other residential property and have taken a loan from a trusted bank or housing finance company.

5. Tax Deductions in the Case of Joint Home Loans

A joint Home Loan is one where more than one person is responsible for repaying the loan. Joint Home Loans offer substantial tax benefits. However, these benefits are available only when the joint Home Loan borrowers are also co-owners of the property.

In the case of joint Home Loans, all borrowers can claim deductions up to a maximum of Rs.1.5 Lakh on payments made towards principal repayment and up to a maximum of Rs.2 Lakh on payments made towards interest repayment. Thus, combined, joint Home Loan payers can claim a maximum of Rs.7 Lakh as tax deductions by way of a Home Loan, which is a substantial amount of funds.

People Also Read: Benefits of Joint Home Loan

In summary, Home Loans offer substantial tax benefits through deductions on principal and interest repayments under Section 80C and Section 24(b) of the Income Tax Act. Additional provisions like Section 80EE for first-time buyers and tax exemptions for those investing in affordable housing can make Home Loans a prudent financial decision for borrowers seeking homeownership.

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