All you need to know about home loan tax benefit in detail

India’s real estate sector is expected to reach a market size of $1 trillion by 2030 and contribute 13% of India’s GDP by 2025. The rising growth of real estate has simultaneously amplified the demand for home loans in India. Additionally, the reasonable interest rate on housing credit has encouraged aspiring homebuyers to move ahead with their plan. Nonetheless, before applying for credit, individuals should also be aware of the home loan tax benefit they are entitled to under the Income Tax Act, 1961.

Know about the home loan tax benefit in detail

Here are the details on housing loan tax benefits –

1. Section 80C

Under this section, individuals can claim an income tax deduction of up to Rs.1.5 lakh on the principal repayment every year. It is available both for the purchase and construction of any residential property. Nonetheless, to avail of this benefit, one needs to fulfil the below-mentioned parameters –

• The construction of this property should be completed before claiming this deduction.
• Borrowers cannot sell their house within 5 years of possession.
• If they sell it within this period, the deduction they have earned to date will be reversed. It will then be added to their taxable income of the year they sell this property.

Furthermore, Section 80C also offers income tax exemption on registration charges and stamp duty. However, one can only claim it once. Individuals can also claim IT benefits on the interest component of a home loan as well.

1. Section 24B

Section 24B of the IT Act allows you to claim income tax deductions on the interest payment of a housing loan. However, the cap on tax deductions is set at Rs.2 lakh per year. Moreover, this exemption is available in two scenarios, pre-construction and post-construction.

• Pre-construction period: The income tax benefit on annual interest paid on housing loans is available through 5 instalments for properties under construction. However, the construction period here cannot exceed 5 years.
• Post-construction period: For ready-to-move-in properties, individuals are entitled to an exemption on home loan interest paid up to Rs.2 lakh. However, the property must be used for residential purposes only. Moreover, if one purchases a property and lets it out, an upper limit of the tax benefit is Rs.2 lakh only. However, this deduction is applicable once the property is fully completed. 

  Section 80EE

Under this section, additional tax exemption is only available to first-time homebuyers. An additional tax rebate of up to Rs.50,000 per year is available on the interest payment. However, one needs to meet the following criteria to be eligible for it –

• This additional exemption is only available on residential properties
• The property value must not exceed Rs.50 lakh
• The loan amount should be less than 35 lakhs

Meeting these parameters will enable individuals to claim the deduction mentioned above amount each year until they complete the home loan repayment.

Section 80EEA

Qualified homebuyers can also apply for an additional deduction of up to Rs.1.5 lakh on a home loan. This deduction is available on and above Rs.2 lakh tax benefit offered under Section 24B.  Hence, in this case, the total annual deduction amount would be Rs.3.5 lakh.

However, one should remember a few pointers to be eligible for this deduction –

• The property value here must not exceed Rs.45 lakh.
• Individuals who claim tax benefits under 80EE are not eligible

Note that the latest Union Budget has exceeded the timeline of this deduction to March 31st 2022. Moving ahead, income tax exemption on housing loan interest is also available under section 24B. 

Deduction on joint home loans

Income tax deductions are also available on joint home loans. Here both co-applicants can file for an exemption of up to Rs.2 lakh on interest payment and Rs.1.5 lakh on principal payment of a home loan individually. 

Income tax benefits are not the only advantages of housing credit. This financial product eases the way of becoming a homeowner with its borrower-friendly terms. For instance, existing borrowers can opt for a home loan transfer to reduce the interest burden. 

 advantages of a home loan

1. Substantial loan quantum: The loan amount here is substantial and depends on an applicant’s eligibility and loan LTV. Also, the down payment amount here plays a role in deciding the final sanctioned amount.
2. Affordable interest rate: The home loan interest rate in India is competitive, making borrowing cost-effective.
3. Extended repayment tenor: The repayment tenor of a home loan can go up to 20 years, which ensures hassle-free repayment. Moreover, it allows individuals to choose a favourable tenor and settle for an affordable home loan EMI. 
4. Pre-approved offers: Pre-approved offers extended by leading HFCs to streamline the loan application process. It is applicable on financial products like home loans, loan against property, etc. Individuals can now check their pre-approved offer by entering names and contact numbers. 

Since this loan is a substantial liability for borrowers, tax benefit on second home loan can reduce the repayment burden. Hence, they should know the tax benefits provisions on this loan and claim for the same.