India has a very structured taxation system that has been in place for decades. Though several aspects of the revenue system have changed with time, the core essence of tax in the country remains unchanged. Every transaction undertaken by an Indian citizen invites some form of tax. The greater the transaction, the larger the tax imposed on it.
Loans of any form also invite a significant tax revenue percentage, and it is interesting to look at housing loans specifically.
According to the Income Tax Act of 1961, home loan borrowers are eligible for home loan tax benefit in India. If you’re looking to reduce your income tax liability, housing loan tax exemption can be an effective and safe way to do so.
But to avail of these benefits, it is important that you know about the intricacies involved, along with the process to claim such benefits. Here is everything you need to know about home loan tax benefits in India.
What is Home Loan Tax Benefit?
Every loan amount invites tax payments to the Government of India. While the procedure is the same for housing loans, there are certain scenarios under which the borrower can enjoy a tax exemption. For instance, an individual who has borrowed a home loan for their own house for the first time is eligible for a tax exemption.
Similarly, when two people borrow a joint loan – with a sibling, partner, or offspring, they are eligible for a tax exemption. These tax benefits have been laid out in a structured manner under different sections of the law. Understanding them will be useful in knowing how tax benefits work.
Home Loan Tax Benefits in India
- Home Loan Principal Repayment: Under Section 80C of the Income Tax Act, borrowers can avail of
- a tax deduction of up to Rs. 1,50,000 for the repayment of the loan principal. It should be noted that this deduction under Section 80C can only be availed on your principal repayment amount, and not on the interest component of your loan.
- Interest Payment Post Construction: Section 24B deals with exemptions on interest payments after the property is fully constructed. Out of the EMIs paid in a year, a borrower can claim a tax deduction of up to Rs. 2,00,000 for a self-occupied house. This is, however, conditional upon your prescribed home loan interest rate.
- Interest Payment Pre-Construction: Section 24B also allows for a deduction on interest payments in the case of under-construction properties. Several homeowners begin their EMI payments long before they get possession of the house. This section of tax exemptions can be very useful to them.
- Stamp Duty Payment: Section 80C deals with the stamp duty payment. Stamp duty is a procedure by which legal ownership of the property is recognized in the name of the owner of the house. Though stamp duty charges vary state-wise, on average, it is about 5-6% of the value of the property. Under this section, an exemption of up to Rs. 1,50,000 can be availed. However, it is to be noted that this exemption is a one-time option and can be claimed only once a year.
- First-Time Buyers’ Payment: As mentioned above, first-time property owners can enjoy these tax exemptions as well. Under Section 80EE, first-time homebuyers can claim an additional Rs. 50,000 on the interest payable during every financial year. However, there is an underlying condition here that the housing loan amount must not be more than Rs. 35,00,000.
How Can You Claim Tax Benefits on Your Home Loan?
The process to claim tax benefits on your home loan has been rendered simple, quick, and effective with the advent of modern technology. First, ensure that the property is correctly mentioned in your name. If it is a joint loan, ensure that both the owners’ names have been mentioned correctly.
Calculate the total amount that is eligible for a tax deduction and submit the required property documents along with identification proof. It is also important to ensure that your employer is aware of this deduction and adjusts your TDS accordingly. On failing to do this, you need to file your IT returns.
It is very easy to calculate the tax benefits you can avail of using a home loan calculator, a simple online tool that requires a few loan details and shows you the benefits you can avail of.
As of February 1, 2021, the Union Government has extended the additional tax deduction of Rs. 1,50,000 on interest paid on home loan until March 31, 2022. If you’re financing your dream home with a housing loan, don’t miss out on these significant tax benefits that can greatly relieve your financial burden.
After undertaking proper research, apply for home loan tax benefits and move one step closer towards owning your dream property.
Ramesh Kumar is a financial advisor with more than 14 years of experience in the field of finance and money-making. He loves to share content on finance, money, investment, and many more.