You can save taxes upwards of 1.5 lakhs on multiple aspects of the home loan- like the principal, the interest if it is under affordable housing, and on the registration and stamp duty under the following sections-
- Section 80C: Deduction up to Rs. 1.5 lakh on home loan principal repayment
- Section 24b: Deduction up to Rs 2 lakh on interest repaid during pre and post-construction period
- Section 80EEA: Additional interest deduction of up to Rs 1.5 lakh under affordable housing for home loans sanctioned between 1st April 2019 and 31st March 2021
- Section 80C: Deduction for Stamp Duty and registration charges
It’s a dream come true for anyone to own a home. The Government of India has always been keen to encourage people to invest in a home. And when you buy a house on a home loan, it comes with multiple tax benefits too that significantly reduce your tax outgo. Many schemes, such as Pradhan Mantri Jan Dhan Yojana, are helping the Indian housing by seeking to resolve the issues of access and affordability.
- Taking a home loan can help you save tax as per the provisions of the Income Tax Act, 1961. Amidst the quest to reduce tax liability, tax payers, especially those who are serving home loan repayment, can get benefits on certain tax benefits related to home loans. You can claim deduction on both principal as well as interest repayment of your home loan
1. Section 80C: Deduction up to Rs. 1.5 lakh on home loan principal repayment
You can claim tax deduction up to Rs 1.5 lakh under Section 80C for repayment of principal component of a home loan, availed for purchase or construction of residential property.
Remember that construction of property must be completed within 5 years from the end of the financial year in which the loan was taken. Also, if the property is transferred or sold within 5 years, tax deductions claimed so far would be reversed, i.e. added back to your income in the year of sale, and then taxed according to your tax slab.
2. Section 24b: Deduction up to Rs 2 lakh on interest repaid during pre and post-construction period
Interest repaid on a home loan is classified in two categories i.e. interest pertaining to the pre-construction and post-construction period.
Interest paid in the post-construction period:
–Self-occupied property, tax deduction up to Rs 2 lakh can be claimed
–Let out property, there is no upper limit for claiming interest deduction. (Can only be claimed from the year in which construction of the house is completed.)
Interest paid for an under construction property:
For purchasing under construction property wherein we receive possession at a later date, but home loan repayment starts immediately after availing a loan, borrowers can claim tax deduction under Section 24b on interest paid during pre-construction period for up to 5 years (in 5 equal instalments).
Remember that the maximum amount that can be claimed remains capped at the overall limit of Rs 2 lakh per year, including both pre and post construction period’s interest repayment.
3. Section 80EEA: Additional interest deduction of up to Rs 1.5 lakh under affordable housing for home loans sanctioned between 1st April 2019 and 31st March 2021
- Housing loan must be taken from a financial institution or a housing finance company for buying a residential house property.
- Stamp duty value of the house property should be Rs.45 lakhs or less.
- The individual taxpayer should not be eligible to claim deduction under the existing Section 80EE.
- The taxpayer should be a first-time home buyer. The taxpayer should not own any residential house property as on the date of sanction of the loan.
4. Section 80C: Deduction for Stamp Duty and registration charges
You can also claim tax benefits on stamp duty, registration charges and other expenses which are directly related to the transfer of the property, which were paid during purchase of house property. These charges can be claimed within the overall limit of Rs 1.5 lakh under section 80C. Remember that such deduction can only be claimed in the year in which these expenses have incurred.
If you are able to satisfy the conditions of both Section 24 and Section 80EEA of the Income Tax Act, you can claim the benefits under both the sections. First, exhaust your deductible limit under Section 24, which is Rs 2 lakh. Then, go on to claim the additional benefits under Section 80EEA. Therefore, this deduction is in addition to the Rs 2 lakh limit allowed under Section 24.