8 Different Ways to Save Tax Benefits on Home Loans

Availing of a loan, such as a Home Loan or a Top-up loan, involves repaying it through EMIs, which consist of both the principal and interest components. Both these components qualify for tax benefits on Home Loans under the Income Tax Act, 1961 and provide considerable savings on annual tax liabilities under the old tax regime.

Tax Benefits on Home Loans

A borrower can claim tax deductions on the Home Loan principal repayment under Section 80C and on the interest component under Section 24(b) of the Income Tax Act, 1961. To facilitate this, a Home Loan provisional certificate is issued by the lender, which offers a detailed summary of the interest paid and the principal amount repaid by the borrower during the financial year. It serves as evidence of loan repayment, enabling the borrower to claim the tax deductions when filing income tax returns.

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

8 Different Ways to Get Tax Benefits on a Housing Loan

Here is a detailed look at the eight different ways to secure tax exemptions on a Home Loan under the old tax regime: 

1. Section 80C Tax Benefits on Principal Amount

The amount of loan one can borrow is determined by Home Loan eligibility and several other factors. One can enjoy maximum deductions of 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:

• Under this section, payments made towards registration fees and stamp duty are eligible for deduction. However, they can only be claimed once in the year the charges are paid.
• The construction of the property should be completed within five years from the end of the financial year in which the loan was availed.
• The property must not be sold within five years of possession. If the property is sold before five years, any deduction claimed under Section 80C will be reversed. 

2. Section 24(b) Tax Benefits for Interest Payment

The Home Loan interest rates offered by lenders determine the overall cost of borrowing. A borrower can claim deductions on the interest paid towards a Home Loan under Section 24(b) of the Income Tax Act, 1961. A maximum rebate of Rs.2 Lakh can be claimed from your gross income every year for a self-occupied property. If an individual owns two houses, the combined tax deduction for Home Loan interest payments cannot exceed Rs.2 Lakh in a financial year.

If the property is rented out, the entire amount of interest paid towards a housing loan is eligible for 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. The Income Tax Act, 1961, permits rebates on interest for both the pre-construction and post-construction period. 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 an individual 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 80EE

Section 80EE allows income tax relief to a first-time homebuyer on the interest component of a Home Loan under the following conditions: 

• The value of the property being purchased should not exceed Rs.50 Lakh.
• The loan amount borrowed should not exceed Rs.35 Lakh.
• The housing loan must be sanctioned between 1 April 2016 and 31 March 2017. 
• The maximum deduction allowed is Rs.50,000 in a financial year. 

5. Section 80EEA Tax Benefits for First-Time Homebuyers

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 a residential property. 
• The loan must be approved between 1 April 2019 and 31 March 2022. 
• The value of the property should not exceed Rs.45 Lakh. 
• If the taxpayer has already claimed a deduction under Section 80EE, they cannot claim the benefits under Section 80EEA.
• The maximum deduction allowed under Section 80EEA is Rs.1.5 Lakh per financial year, over and above the Rs.2 Lakh limit under Section 24(b).
• Resident and non-resident borrowers can benefit from this provision. The taxpayer should not own any other residential property at the time of loan sanction.

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

When a Home Loan is availed with a financial co-applicant, each co-borrower can deduct the interest payments up to a maximum of Rs.2 Lakh under Section 24(b) and principal repayments up to Rs.1.5 Lakh under Section 80C. 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, 1961. 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 80C 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?

To calculate Home Loan tax benefits easily, borrowers can use an Income Tax Calculator. It is accessible online and provides the total amount of tax saved along with the tax payable before and after availing of a housing loan. To calculate tax savings, you need to access the calculator and:

1. Select your gender.
2. Enter your annual income.
3. Enter the amount of interest paid on the Home Loan.
4. Enter the principal amount repaid on the Home Loan.

The Income Tax Calculator will display the total income tax benefit. 

Read Also: How to Calculate Home Loan Tax Benefits?

Summing Up

Home Loan interest rates directly impact the cost of borrowing. Keeping it within a manageable range can help reduce monetary obligations and maximise the tax benefits on a Home Loan. A housing loan EMI calculator helps borrowers understand their monthly obligations and manage finances effectively. Apart from this, various other investments can help one fetch greater returns and optimise savings while reducing tax liability. Remember, when it is time to do the taxes and claim the applicable deductions, access an online Income Tax Calculator to effortlessly compute tax savings in the current financial year.