Everything You Need to Know About Home Loan Tax Benefits

Home Loans are a popular way for people to buy a house because they allow them to spread the cost over a longer period of time, making it more affordable. But that’s not all, you can also use Home Loans as an instrument to exempt yourself from considerable amounts of taxes and save money. Let us learn how. 

Tax Benefits Available on Home Loans

The tax benefits are available in India under the Income Tax Act and are intended to encourage home ownership. The two primary tax benefits available on Home Loans are: 

1. Tax Benefits on Home Loan Interest

Taxpayers can deduct the interest paid on their Home Loan up to a maximum of INR 2,000,000 for self-occupied properties and INR 3,000,000 for rented properties. 

2. Tax Benefits on Principal Repayment

Section 80C of the Income Tax Act allows taxpayers to claim a deduction for repayment of the principal amount of their Home Loan up to a maximum of INR 1,50,000.  

By claiming these tax breaks, homeowners can reduce their taxable income and lower their tax liability, making home ownership more affordable. However, it is important to note that tax laws and regulations are subject to change, so it is best to consult a tax expert for the most up-to-date information. 

Income Tax Rebate on Home Loan

Borrowers who have obtained a Home Loan can make the entire experience much more affordable by claiming eligible Home Loan rebates. A Home Loan enables prospective buyers to purchase their dream home without depleting their life savings. On the repayment of a Home Loan, various income tax rebates on Home Loans are available. 

Tax Deduction Available on the Interest Paid

Tax Deduction on Interest Paid is a tax break available to homeowners who have a Home Loan. The Income Tax Act allows taxpayers to deduct the interest paid on their Home Loan up to INR 2,00,000 for self-occupied properties and INR 3,00,000 for let-out properties. This means that the amount of interest paid on the Home Loan can be deducted from the taxpayer's taxable income.  

For example, if a taxpayer has taxable income of INR 10,00,000 and pays interest on their Home Loan of INR 1,50,000, their taxable income is reduced to INR 8,50,000. 

Tax Deduction Available on the Principal Amount

Tax Deduction on the Principal Amount is a tax break available to Indian homeowners who have taken out a Home Loan. Section 80C of the Income Tax Act allows taxpayers to claim a deduction for repayment of the principal amount of their Home Loan, up to a maximum of INR 1,50,000. This means that the amount repaid toward the principal of the Home Loan can be deducted from the taxpayer's taxable income, lowering the taxpayer's tax liability. 

For example, if a taxpayer has a taxable income of INR 10,00,000 and repays INR 1,00,000 towards the principal of their Home Loan, their taxable income is reduced to INR 9,00,000. 

Tax Deduction for First-Time Buyers

Tax breaks for first-time home buyers are special tax breaks available to people who are purchasing their first home. Under Section 80EE of the Income Tax Act, first-time home buyers in India can claim additional tax deductions on the interest paid on their Home Loan. This section allows for a maximum deduction of INR 50,000 per fiscal year. This deduction, however, is only available for loans taken up to March 31, 2017. 

To qualify for this deduction, the Home Loan must have been obtained from a financial institution and the property value cannot exceed INR 50 lakhs. Furthermore, the loan amount cannot exceed INR 35 lakhs, and the individual must not own any other residential property on the date the loan is sanctioned. 

Principal Deductions - Home Loan Tax Benefits under Section 80C

The amount repaid toward the principal of the Home Loan can be deducted from the taxpayer's taxable income, thereby lowering their tax liability. The tax deduction for Home Loan principal repayment is available in addition to the tax deduction for Home Loan interest paid, up to a maximum of INR 2,00,000 for self-occupied properties. 

Tax Benefits under Section 80EE

In addition to the regular deduction under Section 24, taxpayers can claim a deduction on the interest paid on their Home Loan under Section 80EE, up to a maximum of INR 50,000 per fiscal year. This tax break is available to first-time home buyers who have obtained a loan from a financial institution and whose property value does not exceed INR 50 lakhs. Furthermore, the loan amount cannot exceed INR 35 lakhs, and the individual must not own any other residential property on the date the loan is sanctioned. 

Home Loan Tax Benefits of Owning a Second Property

A second home can also provide the owner with tax benefits. If the second property is rented, the homeowner can deduct interest on the mortgage under Section 24 of the Income Tax Act. The maximum deduction available under this section per fiscal year is INR 2,000,000 for self-occupied properties.  

In addition to the interest paid, the homeowner can deduct the property's annual maintenance and repair expenses, municipal taxes, and insurance premiums under the same section. These deductions are subject to certain conditions and limitations, so it is best to consult a tax expert for the most up-to-date information. 

It is important to note that owning a second property entails additional financial and tax obligations, such as filing a tax return and paying property-related taxes. Because tax laws and regulations are subject to change, it is best to conduct extensive research on the tax advantages of owning a second home. 

Also Read: Tax Benefits on a Second Home Loan 

How to Claim Tax Benefits on Home Loans?

To claim tax benefits on Home Loans, you must go through the following steps: 

1. Keep all relevant documents, such as the Home Loan agreement, interest certificates, property papers, and receipts for any payments made on the Home Loan. 

2. Check to see if you are eligible to claim tax benefits under the provisions of the Income Tax Act. 

3. To claim the tax benefits, you must file your income tax returns and include details about your Home Loan. 

4. To claim the deductions under sections 80C, 24 and 80EE, you must fill out the appropriate forms and provide all the necessary documentation. 

5. Submit the forms and supporting documentation to the Income Tax Department with your tax returns. 

6. Wait for your income tax returns to be assessed and your claims to be approved. 

Also Read: How to File your ITR for Home Loan 

How to Calculate Home Loan Tax Benefits Online?

There are several methods for calculating your Home Loan tax benefits online. Here are two approaches you should be aware of before filing your income tax returns. Follow these steps to calculate Home Loan tax benefits online: 

Using an Online Tax Calculator

There are several online tax calculators that can assist you in calculating the Home Loan tax benefits. Simply enter the relevant information, such as the loan amount, interest rate, and loan tenure, and the calculator will estimate the tax benefits you are eligible for.

Using the Online Calculator Provided on the Income Tax Department Website

The income tax department's website also includes a tax calculator that can be used to calculate the tax benefits of a Home Loan. You can enter the necessary information and calculate the deductions for which you qualify. 

Remember that these online calculators only provide estimates, and that the actual tax benefits may vary depending on the individual.