By providing tax benefits, the government aims to make home ownership more affordable for people and boost the demand for housing.
The EMI of any home loan has two components, that is, the principal amount and the interest amount.
Home loans come with tax benefits that can help reduce the overall tax liability of the borrower. The principal amount and interest paid on the home loan are eligible for tax deduction under various sections of the Income Tax Act.
Home loans are easily available to individuals who meet the eligibility criteria set by banks and financial institutions. This has helped many people to fulfill their dream of owning a home.
Owning a home in India is considered a valuable asset, and is often viewed as a long-term investment that can provide financial security and stability to individuals and their families.
In 2020-21, the government announced that all the old regime of income tax exemption on home loans is applicable till the year 2024.
By providing tax benefits, the government aims to make home ownership more affordable for people and boost the demand for housing. This, in turn, helps stimulate the growth of the housing industry, which is a major driver of the economy.
Read also: Smart ways to reduce home loan EMI burden when interest rates rise
The EMI of any home loan has two components, that is, the principal amount and the interest amount.
Tax Deduction on Principal Repayment:
Under Section 80C of the Income Tax Act, a borrower can claim a deduction of up to Rs. 1.5 lakh on the principal repayment of the home loan. This deduction can be claimed only if the borrower has taken the loan for the purpose of purchase or construction of a residential property. This deduction can be claimed along with other tax-saving instruments like PF, insurance, fixed deposits etc.
Tax deduction on interest paid:
Under section 24 of the Income Tax Act, a borrower can claim a deduction of up to Rs. 2 lakh on the interest paid towards the home loan in a financial year. This deduction can be claimed only if the borrower has taken the loan for the purpose of purchase or construction of a residential property.
Deduction for first time home buyers:
Under Section 80EEA of the Income Tax Act, a first-time home buyer can claim an additional deduction of up to Rs. 1.5 lakh on the interest paid for the home loan. This deduction is available over and above the deduction of Rs. 2 lakhs allowed under section 24.
In case of a second home purchased with the home loan and a self-occupied or rented property, you can still avail housing loan tax benefits of up to Rs 1.5 lakh.
Also, the interest portion of the home loan EMI can be claimed as a deduction under section 80EE, up to a maximum of Rs 50,000. This deduction is in addition to the deduction claimed on the interest amount under section 24(b) of the Income Tax Act.
However, you can claim deduction under only one of these sections: Section 80EE and Section 80EEA, depending on when your home loan was sanctioned.
Under Section 80EE, the home loan should be taken in the financial years 2013-14, 2014-15 and 2016-17, the loan amount should not exceed Rs 35 lakh and the value of your property should not exceed Rs 50 lakh.
Home loan under section 80EEA must have been taken in the financial years 2020-21 and 2021-22. Like Section 80EE, this is also only for first time home buyers, which means you should not own a house on the day of loan approval.
The stamp duty value of the residential house property should not exceed Rs. 45 lakhs.
pre-construction phase
Section 24B of the IT Act provides tax exemption on interest paid on home loan. Within the overall limit of section 24B, deduction for interest paid is available up to Rs 2 lakh.
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