Home loan borrowers can avail of home loan tax benefits on both the interest and the principal components of their home loan under various sections of the Income Tax Act of 1961. In this article, we discuss home loan tax benefits on interest and principal components of the home loans.
Home Loan Tax Benefits: Everything You Need to Know
Home Loan Benefits Under Section 80C
Under Section 80C of the Income Tax Act, home loan borrowers can claim tax benefits up to Rs.1.5 Lakh through different tax-saving instruments, such as the NSC, PPF, ULIP, home loans, stamp duty and registration charges, etc.
Home loan borrowers repaying a home loan can claim home loan tax benefit on the principal component of the loan up to a maximum of Rs.1.5 Lakh under Section 80C of the Income Tax Act. However, this home loan tax benefit can be claimed only if the property is fully constructed and no work is pending. Further, if someone sells their property within 5 years of making the purchase, the home loan tax benefit gets reversed. In fact, the owner then has to pay income tax on the reversed amount. Homebuyers can also claim tax benefits on the stamp duty and registration charges. However, the maximum home loan tax benefit that one can claim cannot exceed Rs. 1.5 Lakh, even if they are claiming tax benefits on the principal and interest components.
Home Loan Tax Benefit Under Section 24(b)
Section 80C of the Income Tax Act deals with several different tax saving instruments and home loan tax exemption on the payments made towards the principal component of one’s home loan is one of these different instruments on which one can claim home loan tax benefits under Section 80C. Section 24(b) concerns itself with only one tax-saving instrument and that is the payments one makes towards the repayment of the interest component of their home loan.
Home loan borrowers must also know that if one invests in an under-construction property and the construction on the property is not completed in five years, the upper limit of Rs.2 Lakh mentioned under Section 24(b) automatically gets reduced to Rs.30,000 per annum. All home loan borrowers must also know that the upper limit of Rs.2 Lakh is applicable only in the case of self-occupied properties. In the case of rented-out properties, one can claim a home loan tax benefit on the entire amount paid towards the repayment of the interest component of one’s loan.
Most importantly, for joint home loans, which are loans availed of by two or more individuals together and where all the co-borrowers/co-owners are equally responsible for the repayment of the loan amount, all home loan borrowers can claim home loan tax benefits separately under Section 80C and section 24 of income tax act.
Additionally, under Section 80EE, first-time homebuyers can claim an additional home loan tax benefit of up to Rs.50,000 and under Section 80EEA, home loan borrowers can claim home loan tax benefits up to Rs.1.5 Lakh. However, these tax benefits can be claimed only when the loan borrower meets all the conditions specified under these sections of the Income Tax Act.
Final Words
In conclusion, a home loan makes one eligible for several different home loan benefits and knowing about these benefits allows home loan borrowers to make the best use of these benefits and save significantly on their yearly income tax liability.
