Home Loans Tax Benefits: Exemptions Under Section 80C, 24(b), 80EE, & 80EEA
One of the primary benefits of home loans is that you get to enjoy substantial tax rebates, which significantly reduce your tax outgo. If you already have a home loan, you can claim home loan tax benefits under various sections of the Income Tax Act, including Section 24(b), 80C, 80EE, and 80EEA.
This post discusses home loan tax benefits under various sections of the Income Tax Act, how to claim tax benefits, tax benefits on a second home and property under construction and eligibility criteria. Read on!
What are the Income Tax Benefits that come with Home Loans?
The government offers various tax benefits to make property purchases more affordable in the country. Post Budget 2020, taxpayers can opt for the new tax regime and pay lower interest without the benefits of various exemptions and deductions. Otherwise, one can opt for the old tax regime and claim deductions as applicable.
The following are the various tax exemptions on home loans available in India.
1. Section 80C – Tax Deduction On Principal Amount
It allows you to claim a yearly tax exemption of Rs. 1.5 lakh from your taxable income on the principal repayment amount. Individuals and HUF (Hindu Undivided Family) can claim tax exemption under Section 80C.
2. Section 24(b) – Tax Deduction On Interest Paid
You can enjoy home loan tax exemptions of up to Rs. 2 lakh on the interest payment component. This is useful during the initial repayments of your home loan when the interest payments are the highest. However, this house loan deduction can be claimed only if the property is constructed completely within 5 years of taking the loan. If the construction takes more than 5 years, you can only claim only up to Rs.30,000.
3. Section 80EEA – Tax Deduction For First-time Buyers
Under Section 80EEA, first-time homebuyers can claim additional tax benefits of up to Rs. 1.5 lakh if their loan was sanctioned in FY 2019-20 (extended to FY 2020-21). This exemption is over and above the existing tax rebate of Rs. 2 lakh under Section 24(b). However, exemption Rs. 1.5 lakhs in a financial year is only applicable to the interest component of the house loan and not the entire repayment amount. Note that the provision for this tax rebate will end on March 31, 2022.
4. Section 80EE
First-time homebuyers can enjoy an additional tax rebate of up to Rs. 50,000 under Section 80EE, provided the loan was sanctioned in FY 2016-17. However, there are a few conditions to be aware of. To claim this exemption, your home loan amount shouldn’t be more than Rs.35 lakh. Similarly, the value of the property should be within Rs.50 lakh.
The below table describes the various tax rebates on housing loans available under the Income Tax Act, 1961.
| Income Tax Act, 1961 | Section 80C | Section 24 | Section 80EE | Section 80EEA |
| Type of tax rebate | Tax rebates on principal repayment | Tax rebates on payable interest | Additional home loan interest tax benefit for first-time homebuyers (2013-15 and 2016-17) | Additional tax benefits for first-time homebuyers (2019-22) with a property stamp value of less than Rs. 45 lakh |
| Maximum deductible amount | Rs. 1.5 lakh | Rs. 2 lakh | Rs. 50,000 | Rs. 1.5 lakh |
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How to Claim Tax Benefits for Home Loan Repayment?
You can claim tax benefits on a home loan when filing your income tax returns (ITR) or when submitting the home loan interest certificate to your employer.
The process to claim housing loan tax benefits is discussed below:
- Check under which section you can qualify for a home loan tax rebate.
- Calculate the total tax deduction that you can claim. You can use the Navi Home Loan EMI calculator to compute annual loan interest obligations and streamline the calculation significantly.
- You can submit the home loan interest certificate to your employer. Your organization will adjust the TDS accordingly.
- In case you do not want to follow the above option, you can file the returns yourself on the official website of India’s Income Tax Department.
If you are self-employed, you do not need to submit these documents to claim your home loan tax deductions. However, you should keep the documents at your disposal to compute your Advance Tax Liability every quarter or if any query arises from the Income Tax department in the future.
Tax Benefits on Joint Home Loan
Taking a joint home loan by two or more applicants also has tax benefits. Co-owners can claim a maximum deduction of Rs. 2 lakh on the home loan interest in their ITR. The rate of interest is divided depending on the ratio of ownership.
Tax Benefits for a Second Home Loan
Under Section 24(b) of the Income Tax Act, homeowners can claim tax benefits of up to Rs. 2 lakh on the interest payable on their second home loan.
In case a person owns multiple properties, one of them will be considered self-occupied for the purposes of tax collection. Since no income tax is charged for a self-occupied property, one can choose the property that has higher applicable taxes to claim maximum benefit.
For a second home, the homeowner can claim tax deductions on a house loan for the entire interest amount.
Tax Benefit for a Property Under Construction Loan
Individuals cannot claim tax benefits on home loan repayment till their property is fully constructed. However, that does not mean one cannot claim any tax benefit for the period of property construction.
The following rules are applicable to such deductions.
- One can claim tax exemption on the principal repayment for up to Rs. 1.5 lakh.
- Home loan interest deduction can be claimed in five equal instalments after the property is fully constructed.
- For the full tax deduction of Rs. 2 lakh on interest amount, the property must be fully constructed within five years of taking the loan.
- If the construction is not completed in five years, a tax rebate of up to Rs. 30,000 will be available.
Tax Exemptions on Home Loans and House Rent Allowance (HRA)
House Rent Allowance (HRA) is the compensation provided by the employer to the employee to meet the expenses of rent. Under Section 10 of the Income Tax Act, 1961, employees can claim tax exemptions on rent payments every year.
You have to meet these clauses to qualify for HRA exemptions:
- You have to be a salaried employee living in a rented accommodation
- You need to have an HRA component in your salary structure.
- HRA exemption limit is the lowest of any of these–
- Total house rent allowance received from the employer
- Actual rent paid minus 10% of salary
- 40% to 50% of the basic salary
- If you are living in a different city, you can claim tax rebates for the home loan as well as HRA provided you are staying as a tenant.
Eligibility Criteria for Home Loan Deduction
- Any individual who has purchased a new property with a home loan can claim tax rebates under Section 80C, 24, 80EEA, 80EE of the Income Tax Act. Also, borrowers with a joint loan who are also co-owners of a property can claim tax rebates on housing credit.
- Property must be fully constructed to claim tax deductions. In case the house is not built, it must be completed within five years of taking the loan to claim maximum deductions. For home loan interest deduction, one must obtain an interest certificate from the financial institution.
- To get additional tax rebates of up to Rs. 1.5 lakh under Section 80 EEA, you have to be a first-time homebuyer. Moreover, the stamp value of their property must not exceed Rs. 45 lakh.
Tips to Keep in Mind When Taking a Home Loan
- Check and compare interest rates offered by lenders to make an informed decision.
- Check your repayment capacity before taking a home loan.
- Calculate the overall cost of your loan – processing fee and other additional charges.
- If you have a credit score of 750 or above, you can negotiate with your lender for better rates.
- Calculate your EMI obligations beforehand for better financial planning.
- Make sure it’s not a disputed property.
- Have all the loan- and property-related documents in place to avoid loan rejection.
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Final Word
For a hassle-free process to avail of a home loan, make sure you have all the necessary documents with a good CIBIL score. The various tax benefits mentioned above would also lessen the debt burden.
To further make the borrowing process cost-effective, you can avail of a home loan from Navi. You can get home loans up to Rs.10 crore at interest rates starting at 8.39% p.a. Download the Navi app to get instant loan approval through a completely paperless process.
FAQs
Ans: Yes. One can claim deductions of up to Rs.1.5 lakh per annum on stamp duty and registration charges for buying a home as per Section 80C.
Ans: If both the husband and wife are co-owners of the property and co-borrowers of a home loan, they can claim deductions under Section 24 and Section 80C separately.
Ans: Yes. If you own two houses and have two home loans, you can claim one as self-occupied and the other one as a let-out property. With this, you can get tax benefits on both loans.
Ans: Yes, under Section 80C of the Income Tax Act, you can get tax benefits on the repaid principal amount.
Ans: Your credit score and your monthly income determine your eligibility and your repayment capacity.
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Disclaimer: This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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