A home loan not only helps finance your purchase of a new house. It also opens the doorway to tax benefits under various sections of the Income Tax Act of India, 1961. On February 1, 2021, the government decided to extend the extra tax deduction of up to 1.5 lakh INR till March 31, 2022. This was included in the Union Budget 2021.
Sections of the Income Tax Act that Offers Tax Benefits on Home Loans
Section 80C
It allows you to claim your home loan principal repayment as a tax deduction of up to 1.5 lakh INR from your annual income.
This amount may even include registration charges and stamp duty. However, you can claim them only once.
Section 24
It lets you claim tax deductions of 2 lakh INR at most on the home loan interest paid.
Both the above deductions are applicable on a property only if its construction gets over within 5 years. Otherwise, you can claim up to 30,000 INR only.
Section 80EE
It permits you to claim an extra 50,000 INR every financial year on the interest paid for a home loan. The property must cost within 50,00,000 INR. The loan amount must not exceed 35,00,000 INR.
You can avail of tax benefits under this section if you choose a housing loan under PMAY CLSS. This scheme allows both economically weak and middle-income groups to qualify for home loans at low EMIs.
A Few Things to Remember
- The tax exemption applies only when you buy a ready-to-move-in home or the construction of the property purchased is complete.
- You can enjoy the above tax benefits on a housing loan
- In case you sell the property within 60 months of its possession, the tax benefits are reversed to get added to your income.
- If you let out the purchased property on rent, you cannot claim any maximum amount as tax exemption.
- Say, while using a home loan, you continue to reside in a rented house. Then you can claim tax benefits against House Rent Allowance also.
Are there any Tax Deductions on a Joint Housing Loan?
Each co-borrower of a joint home loan can get the above-mentioned tax benefits on individual taxable income. He/she must also be a co-owner of the particular residential property.
Are Housing Loan Tax Benefits Available on a Second Home?
If you use a second home loan to buy another house, you can claim the whole payable interest as a tax deduction.
Presently, only one property can be claimed self-occupied. You can pay tax on the other property according to notional rent. As per the latest Union Budget, a proposal has been made to allow a person to claim his/her second home as self-occupied property.
Now go for saving tax on your home loan! Ensure the residential property is in your (and the co-borrower’s) name. Check the aggregate amount to claim as a tax deduction. Give your employer the interest certificate of the loan to have the TDS adjusted. If you can’t follow this step, file your income tax returns. Self-employed can just keep the documents handy for future reference.
