What is the maximum deduction limit for tax benefits on Home Loans?

A total deduction of Rs.3.5 Lakh can be availed on Home Loans under sections mentioned below: ● Section 80C – Tax deduction on Principal Repayment – Up to Rs.1.5 Lakh ● Section 24B – Tax deduction on Interest Repayment – Up to Rs.2 Lakh

5 Ways to Claim Tax Benefits on Home Loan

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5 Ways to Avail Tax Benefits on Home Loan _WC

5 min 16 Feb 2024

Highlights:

Exemptions on Principal Repayment
Exemptions on Interest Repayment
Extra Deductions for First-Time Homebuyers
Exemption on Joint Home Loans
Exemption on an Under-Construction Property

Home Loans offer several benefits, the biggest of them perhaps are the tax benefits that come along with this financial instrument. When you take a housing loan, you become eligible for availing of tax benefits throughout the tenor of the loan. Let us look at 5 simple ways in which you can save funds on a Home Loan. 

1. Claim Exemption on Principal Repayment

Your Home Loan EMIs constitute two components — principal and interest. Home Loan borrowers can claim tax deductions up to a maximum of Rs.1.5 Lakh on payments made towards principal repayment under Section 80C of the Income Tax Act of 1961. If you have another home occupied by family members or one that you have rented out, you can claim deductions on principal repayment for this house as well. However, the total deduction under Section 80C of the Income Tax Act cannot exceed Rs.1.5 Lakh.

Over and above tax exemptions on principal repayments, this section also deals with exemptions on stamp duty paid and registration fee. Borrowers must know that Section 80C deals with several other tax-saving instruments and not just exemptions on the principal component of a Home Loan. You can also use an Income Tax Calculator to determine how much tax relief you are entitled to.

2. Claim Exemptions on Interest Repayment

Section 24(b) of the Income Tax Act deals with exemptions on the interest component of the Home Loan. Under this section, borrowers can claim up to a maximum of Rs.2 Lakh as deductions on payments made towards interest repayment. If you have more than one home, you can claim tax deduction on both under this section of the Act. However, the total deduction cannot exceed Rs.2 Lakh in a financial year. 

Borrowers must know that Section 24(b) of the Income Tax Act concerns itself only with tax exemptions on the interest component of a Home Loan and no other tax-saving instrument falls under this category.

3. Claim Extra Deductions if You are a First-Time Homebuyer

If you are a first-time homebuyer who availed of a Home Loan in the FY 2016-17, you can claim an additional Rs.50,000 as tax exemption under Section 80EE of the Income Tax Act. However, to be able to claim this benefit, there are certain conditions that must be met. To start with, you should have taken out the loan after April 1, 2016 and before March 31, 2017. The value of the property for which you had availed of a Home Loan must not have exceeded Rs.50 Lakh at the time and the value of the Home Loan must not have exceeded Rs.35 Lakh. If these conditions are met, a borrower can claim an additional Rs.50,000 in Home Loan tax benefits each year until the loan is paid off.

4. Tax Deduction on Joint Home Loans

The Government aims to promote homeownership for women and encourage adding spouses as co-owners. To promote this, the Government of India offers special benefits in the case of joint Home Loans. All those serving a joint Home Loan can each claim Rs.1.5 Lakh as tax exemption on principal repayment and Rs.2 Lakh on interest repayment separately. Thus, if a husband and wife have taken a Home Loan together, combined they can claim Rs.7 Lakh as tax deductions on their Home Loan.

Read Also: Benefits of Joint Home Loan

5. Tax Exemption on an Under-Construction Property

If you are buying an under-construction property, you can claim tax exemption on interest repayment made during the construction phase in five yearly equal instalments starting from the year in which construction was completed. However, the total exemption cannot exceed Rs.2 Lakh in each financial year. 

Use Home Loans to Your Benefit

Home Loans are a safe and convenient way of building an asset. In a country like India where homes are synonymous with stability and security, a Home Loan can help one take care of one's life's biggest goal or dream while helping them save a considerable amount of funds each year in the form of tax benefits. So, if you are planning to avail of a Home Loan, do financial planning and figure out what EMI can you manage each month. Make sure to add a financial co-applicant to avail of maximum tax benefits on Home Loans under various sections of the Income Tax Act. If you already have a Home Loan running, make sure to claim deductions under various sections of the Income Tax Act.

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FAQs

A total deduction of Rs.3.5 Lakh can be availed on Home Loans under sections mentioned below:

Section 80C – Tax deduction on Principal Repayment – Up to Rs.1.5 Lakh
Section 24B – Tax deduction on Interest Repayment – Up to Rs.2 Lakh

Pre-construction interest is the interest paid while the residential property is still under construction. Deduction on Home Loan interest cannot be claimed during the construction stage but can be claimed after the construction is finished.

Yes, under section 26 read with section 24, each of the joint borrowers can claim tax benefits of up to Rs.2 Lakh.

A home improvement loan can fetch you a tax benefit on the interest component under section 24, where you can avail a deduction of up to Rs.30,000 per annum for the interest that you pay on these loans.

If you buy a second home using a Home Loan, you can certainly avail of tax deductions on the interest component under Section 80C.