Tax Benefits on Housing Loan

Availing a home loan is a great way to get the desired funds for buying your dream space. It not only allows you to keep your savings intact, but also enables you to enjoy various tax benefits in a year. As a smart home loan borrower, you must be aware of the home loan tax provisions so that you can take advantage of the same and reduce your annual tax liability.

Let us look at the various tax benefits you can get on a home loan.

Tax benefit under Section 80C

The EMI you pay to the lender, it consists of two parts – principal amount and the interest component. And the principal amount you repay every year is eligible for tax deduction from your annual tax liability.

You can avail of a tax benefit up to Rs. 1.5 in a financial year under Section 80C of the Indian Income Tax Act. But to claim this benefit, there are specific rules that you must adhere to.

  • You must not sell the property for minimum years from the date of registration.
  • If you sell the property before five years, all the tax benefits you have availed in the previous financial years will be reversed and added to your income under ‘income from property sale’ head. You must furnish the details of the same in your IT returns and it will be taxable as per your usual tax bracket.

Tax benefit under Section 24

During the initial few years of home loan repayment, a major portion of your EMI amount goes towards repaying the interest. Hence it is vital that you compare the interest rates of home loans in India from different lenders and choose the right lenders that offer the loan at lowest interest.

The interest rate has a direct impact on the EMI amount and affordability. So, when your interest rate is low, the EMI is low, and you can easily manage the repayment without compromising on your other financial goals.

The interest amount you repay the lender is eligible for tax deduction up to a maximum limit of Rs. 2 lakhs in a financial year under Section 24 of the Indian IT Act. If you have availed of a home construction, you can claim this deduction from the year after the construction is fully complete.

While deduction under the Section 80C and Section 24 are major tax benefits available on home loan, you can also avail other tax benefits, which are discussed below.

When you purchase a home, there are certain statutory charges that you must pay such as the stamp duty and property registration charges. These are levied by the government, and it is an integral part of the home buying process.

Although these charges contribute significantly to your overall home buying cost, they are eligible for tax benefit. You can include these charges in your tax deductible while filing your IT returns and get tax benefits. The tax benefits on these charges are covered under Section 80C and it is inclusive of the 1.5 lakhs limit. Also, you can claim the tax benefit on these expenses only once, i.e., in the year of property registration.

Final Word

When you avail of a home loan, make sure that you do your due diligence and take advantage of the tax benefits. This will help you save a significant amount every year.

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