With the humongous growth that the real estate sector has witnessed in the recent past and the upward inclination that has been witnessed in property prices, it is nearly impossible today for most homebuyers to afford a home without a home loan. Home loans allow buyers to buy their dream home and then pay for it conveniently over a home loan tenor that one finds favourable.
The Government of India also offers home loan tax benefits to homebuyers to promote homeownership. These home loan tax benefits help homebuyers save more funds and promote more and more Indians to invest in the housing sector. This article sheds light on the various home loan tax benefits available to homebuyers in India.
Home Loan Tax Benefits Available to Smart Homebuyers in India
Section 80C
Section 80C of the Income Tax Act pertains to the home loan tax benefits available on the principal component of the loan.
Individuals repaying a home loan can claim tax benefits up to a maximum of Rs.1.5 Lakh on payments made towards the repayment of the principal component of their home loan. If an individual has more than one home loan, they can claim tax benefits on both home loans under Section 80C.
However, the maximum limit permissible under this section remains Rs.1.5 Lakh, irrespective of the number of home loans a person has.
Joint home loan owners can maximize savings by claiming tax benefits separately under Section 80C. Home loan borrowers must also know that home loan tax benefits under Section 80C apply to both under-construction and fully-constructed properties.
However, if a homebuyer sells their home within 5 years of buying it, the tax benefit they had claimed under Section 80C automatically gets reversed and added as income in the year of sale.
Section 24b
Section 24b of the Income Tax Act deals only with the home loan tax benefits available on the interest component of one’s loan. The maximum limit permissible is Rs.2 Lakh, irrespective of the number of home loans a person has.
Joint home loan borrowers can claim tax benefits separately under this act. However, borrowers must know that they cannot claim home loan tax benefits under this section if the property is under construction.
They can claim tax benefits on the interest paid during the under-construction years in five equal instalments spread over five years after the construction on the property is complete. However, pre-construction and post-construction interest cannot exceed Rs.2 Lakh.
Further, if the construction on the property is not completed within 5 years of one availing of the loan, the maximum home loan tax benefit limit automatically cuts down to Rs.30,000 a year.
Section 80EEA
Section 80EEA of the Income Tax Act provides additional tax benefits up to a maximum of Rs.1.5 Lakh on payments made towards the interest component of one’s home loan. However, these tax benefits are applicable only if the home loan applicant meets the following criteria:
1. The loan applicant must have availed of a home loan from a financial institution or a housing finance company to buy a property for the first time. In other words, only those individuals can claim tax benefits under Section 80EEA who are first-time homebuyers and had no other property under their name at the time of availing of the loan.
2. They must have availed of the home loan between April 1, 2019 and March 31, 2020.
3. The value of the property bought with the loan money must not be any more than Rs.45 Lakh.
4. Home loan borrowers can claim tax benefits under this section of the Income Tax Act only for 5 years from the year of availing of the home loan. Further, only the person paying interest on the loan and not the co-borrower or co-owner can claim tax benefits under this section of the Income Tax Act.
Final Words
A home loan is one of the easiest and most effective ways of reducing one’s tax liability and financial burden. However, most home loan borrowers are completely unaware of these home loan tax benefits available to them.
If you are repaying a home loan, we recommend talking to a tax expert to seek clarity regarding how you can avail of and maximize the home loan tax benefits available to you as an Indian taxpayer.
