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2 mins Read | 3 Months Ago

Home Loan Tax Benefits: Save Income Tax on Home Loan (FY 2023-24)

 How to Reduce Home Loan EMI - Comprehensive Tips by ICICI Bank

 

Given the escalating real estate costs all over the country, purchasing a house outright isn't feasible for many. Therefore, a home loan becomes the preferred choice. Not only does it facilitate home ownership dreams, but it also offers significant tax savings.

While applying for a home loan, individuals can get home loan tax benefits under different sections like Section 80 EEA, Section 24b, which provides income tax benefits of up to Rs. 1.5 lakh. In this article, we will discuss the different tax benefits on Home Loans.

Different Sections of the Income Tax Act for Tax Rebate on Home Loan

Tax Benefit Sections

Maximum Deduction (Per Annum)

Conditions

Section 24b

Up to Rs 2 lakh

Rs 2 lakh limit applies to self-occupied property; no upper limit for rented or deemed-to-be-rented properties.

Section 80C

Up to Rs 1.5 lakh

Applicable for principal repayment.

Section 80EEA

Up to Rs 1.5 lakh

Additional deduction for first-time homebuyers meeting specific criteria.

Income tax benefit on home loan

There are three different sections of the IT Act under which a home loan is eligible for deductions. A home loan is made up of two components- principal and interest. It is possible for you to claim deductions on repayment of both of these components as per the income tax laws. Let us have a detailed look at these home loan tax benefit sections-

1. Home Loan Tax Benefits under Section 80C

Under Section 80C of the IT Act, you can claim tax deductions on the principal amount you repay to your lender. This deduction is also applicable to the registration and stamp duty charges of your home.

The maximum housing loan tax exemption under Section 80C is Rs. 1.5 lakhs in a financial year. Note that there are several other investment options such as ELSS funds, PPF, and tax-saving FD, which are also eligible under section 80C. Even if you have invested in such instruments, the deduction limit will remain the same at Rs. 1.5 lakhs.

2. Home Loan Tax Benefits under 24(b)

Section 24(b) offers income tax rebate on home loan but only on the interest part of the loan. It is also applicable if you have taken a loan for home construction or renovation. The deduction is applicable on the prepayment charges and processing charges you pay to your lender.

If you have rented out the purchased property, you can claim full interest payment deduction. However, if you have occupied the property, the deduction limit is Rs. 2 lakhs in a financial year.

3. Housing Loan Tax Benefits under 80EE

This tax saving on the home loan is only applicable for first-time home buyers. If you have purchased a home for the first time, you can claim additional deductions of up to Rs. 50,000 under section 80EE if you fulfil a few conditions.

To claim this benefit, the home loan amount can only be up to Rs. 35 lakhs and the cost of property cannot be more than Rs. 50 lakhs.

Deduction for Joint Home Loan

When it comes to Joint Home Loans, co-owners have the advantage of claiming additional deductions. Each co-owner can avail these deductions individually, based on their share in the Loan and property.

Tax Benefit Sections

Component

Maximum Deduction

Conditions

Section 24(b)

Interest

Up to Rs 2 lakh

Applicable for buying or constructing a new house, which must be completed within five years from the financial year end in which the loan was availed.

Section 80EEA

Interest

Up to Rs 1.5 lakh

Applicable for a property with a stamp value of up to Rs 45 lakh.

Section 80EE

Interest

Up to Rs 50,000

Applicable for a loan amount of up to Rs 35 lakh and a property value of up to Rs 50 lakh.

Section 80C

Principal

Up to Rs 1.5 lakh

Applicable if the sale of the property is not done before five years of possession is completed.

Section 80C

Stamp Duty

Up to Rs 1.5 lakh

Must be claimed in the same financial year as it was spent.

 

Joint home loan borrowers can take advantage of these deductions, provided they meet the specific conditions mentioned above. Exploring these opportunities to maximise tax benefits and consult experts for accurate guidance is essential.

Selecting the right lender for home loan

With so many ways to save taxes with a home loan, it is often confusing for first-time borrowers to take maximum benefit of the available deductions. As a result, it is essential to choose a lender very carefully. Go for a reputed lender that can offer detailed guidance on home loan tax exemption laws.

This will not only allow you to fulfil your dream of purchasing a house but also save a considerable amount on tax payments.

Home Loan Tax Benefits FAQs

1. Who can Claim Tax Deductions on Housing Loans?

Individuals who have taken a home loan for purchasing or constructing a residential property can claim tax deductions on the interest paid on the loan under Section 24 of the Income Tax Act. Additionally, principal repayments are eligible for deductions under Section 80C.

2. How much Tax will I save if I take out a Home Loan?

The amount of tax savings on a home loan depends on factors such as the loan amount, interest rate, and individual tax slab. Generally, borrowers can avail of deductions of up to Rs 2 lakh on the interest paid under Section 24 and up to Rs 1.5 lakh on principal repayments under Section 80C.

3. Can I Claim both HRA and Home Loan?

Yes, individuals who receive a House Rent Allowance (HRA) from their employers and also pay interest on a home loan can claim tax benefits on both. However, certain conditions apply, such as not owning any other residential property in the same city where HRA is received.

4. Are there any Tax Benefits on a Second Home Loan?

Yes, individuals can also avail of tax benefits on a second home loan. Like the first home loan, deductions can be claimed on the interest paid under Section 24 and principal repayments under Section 80C, subject to certain conditions. 

5. Can I claim both Section 80EE and Section 24?

Yes, individuals can claim deductions under both Section 24 and Section 80EE of the Income Tax Act, provided they meet the respective criteria. Section 24 allows deductions on interest payments, while Section 80EE offers additional deductions specifically for first-time homebuyers meeting certain conditions.

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