Everything You Need to Know About Home Loan Tax Benefits

A Home Loan is a financial product, which allows aspiring homebuyers to own their dream home. Home Loans allow borrowers to spread the cost over a longer period of time, making it more feasible. Borrowers who have availed of Home Loans can exempt themselves from considerable amounts of taxes and save funds. Read on to learn more about the sections under which various tax exemptions are available to homebuyers. 

Tax Benefits Available on Home Loans

In India, the Income Tax Act, 1961 provides tax benefits, which are aimed at promoting homeownership. 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 Rs.2 Lakh for self-occupied properties. If the property is rented out, then the entire interest component is allowed for deductions. 

2. Tax Benefits on Principal Repayment

Section 80C of the Income Tax Act, 1961 allows taxpayers to claim a deduction for repayment of the principal amount of their Home Loan up to a maximum of Rs.1.5 Lakh. 

By claiming these tax benefits, homeowners can reduce their taxable income and lower their tax liability, making homeownership more feasible. 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 claim Home Loan rebates that they are eligible for. Home Loans enable prospective buyers to purchase their dream home without depleting their savings. On the repayment of a Home Loan, various income tax rebates on Home Loans are available. 

Tax Deduction Available on the Interest Paid

Under Section 24(b) of the Income Tax Act, 1961 taxpayers can deduct the interest paid on their Home Loan up to a maximum of Rs.2 Lakh for self-occupied properties. In the case of rented properties, the entire interest paid is applicable for deduction. 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 a taxable income of Rs.10 Lakh and pays interest on their Home Loan of Rs.1.5 Lakh their taxable income is reduced to Rs.8.5 Lakh. 

Tax Deduction Available on the Principal Amount

Section 80C of the Income Tax Act, 1961 allows taxpayers to claim a deduction for repayment of the principal amount of their Home Loan, up to a maximum of Rs.1.5 Lakh. 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 Rs.10 Lakh and repays Rs.1 Lakh towards the principal of their Home Loan, their taxable income is reduced to Rs.9 Lakh

Tax Deduction for First-Time Homebuyers under Section 80EE

Tax rebates for first-time homebuyers are special tax benefits available to people who are purchasing their first home. Under Section 80EE of the Income Tax Act, 1961, first-time homebuyers in India can claim additional tax deductions on the interest paid on their Home Loan availed of from a financial institution. This section allows for a maximum deduction of Rs.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 Rs.50 Lakh. Furthermore, the loan amount cannot exceed Rs.35 Lakh 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(b) of the Income Tax Act, 1961. The maximum deduction available under this section per fiscal year is Rs.2 Lakh 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(b) 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 Income Tax Calculator

Several online Income Tax Calculators can assist you in calculating the Home Loan tax benefits. Simply enter the relevant information, such as the gender, annual income, interest paid and principal repaid on the Home Loan, 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 an income 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.