Tax Benefits On Home Loans: How To Maximize Your Saving

Obtaining a home loan offers significant tax-saving opportunities under the guidelines of the Income Tax Act of 1961. Smart planning turns annual expenses into substantial financial gains. Savvy homebuyers can offset loan burdens with strategic tax advantages. Explore options to transform home loan payments into long-term savings opportunities.

The following table outlines the home loan tax benefit under the corresponding sections of the Income Tax Act of 1961:

Deduction for Interest on a Home Loan

You can get a home loan to buy or build a house. However, the construction must be finished within five years. These loans include the principal and interest. Section 24 allows a deduction of up to Rs. 2,00,000 for interest on loans for self-occupied homes. For rented properties, there is no limit on the interest claim. Yet, the overall loss in “House Property” cannot exceed Rs. 2 lakhs. You can start claiming this deduction once construction is complete.

Deduction for Pre-Construction Interest

Pre-construction interest is deductible under the Income Tax Act. It can be claimed in five equal instalments starting when the property is acquired or construction is completed, with a Rs. 2 lakhs cap. For instance, if you have paid Rs. 10,000 in interest per month and the construction is completed in the FY 2022, you can opt for pre-construction interest in a breakup in 5 instalments after FY 2022 up to Rs. 2 lakhs including the current and previous project interest.

Home Loan Tax Benefits under Section 80C – Principal Deductions

Principal repayments on home loans offer tax benefits under Section 80C. The annual limit is Rs. 1.5 lakh for all properties. This covers stamp duty and one-time registration fees post-construction. Claim these deductions cautiously since selling within five years nullifies them. The claimed amount becomes taxable income in the sale year, potentially increasing your tax burden.

Tax Benefits under Section 80EE

Home buyers can claim up to Rs. 3.5 lakh in tax deductions on loan interest. Section 24(b) offers Rs. 2 lakhs, while Section 80EE provides an extra Rs. 1.5 lakhs. To qualify, the property must cost under Rs. 45 lakhs. This incentive applies to loans approved before March 31, 2024, boosting affordable housing accessibility.

Deduction for Joint Home Loan

If a housing loan is taken jointly, each borrower can deduct up to Rs. 2 lakhs in interest and Rs. 1.5 lakh in principle, but only if they also co-own the property.

Benefits of a Second Property

Current provisions allow tax benefits on payable interest for a second self-occupied home, helping borrowers save more on taxes. The full interest payment is eligible for tax benefits.

The tax benefits of home loans can be utilised to the maximum to save money and, hence, bring down the cost of holding a home. Using a home loan EMI calculator, you can easily estimate your monthly payments and plan your finances more effectively, taking full advantage of the tax benefits available. It is a relief for home buyers to know these benefits, which makes the cost of homeownership less burdensome and makes general housing worth it.