Housing Loan Tax Benefits: Overview
Individuals can avail of various tax benefits on their Home Loans under the Income Tax Act, 1961. To save a significant amount of funds on your tax payments, it is important to understand the various tax deductions available.
Tax Benefits on a Home Loan
You can claim tax exemptions on both the components of your Home Loan, namely the principal and the interest component. Here is the list of tax benefits homebuyers can claim under various under the old tax regime:
1. Section 24(b) of the Income Tax Act: This section allows a deduction on the interest paid for a self-occupied property. Tax exemption of up to Rs.2 Lakh can be claimed.
2. Section 80C of the Income Tax Act: This section allows a deduction of up to Rs.1.5 Lakh on the principal repayment of the Home Loan.
3. Section 80EE of the Income Tax Act: Under this section, first-time homebuyers can claim additional tax benefits of up to Rs.50,000 on the Home Loan interest component. However, one must not have any property in their name at the time of sanctioning a Home Loan.
To sum up, you can avail of an exemption on your Home Loan principal and the interest payments under Section 80C and Section 24(b).
Home Loan Tax Exemption Under Different Sections in FY 2023-24
The Home Loan tax benefits under the applicable sections of the Income Tax Act, 1961 are given below:
| Deduction Applicable on | Income Tax Section | Maximum Deduction (in Rs.)/p.a. | Parameters |
|---|---|---|---|
| Home Loan Principal | 80C | 1.5 Lakh | A residential property financed by a Home Loan cannot be sold within the first 5 years of possession. |
| Home Loan Interest | 24(b) | 2 Lakh | The funds procured through a Home Loan must be used for the purchase or construction of a residential property. The construction must be completed within 5 years from the end of the financial year, in which the loan amount was disbursed. |
| Home Loan Interest | 80EE | 50,000 | The funds procured through a Home Loan cannot exceed Rs.35 Lakh and the value of the property cannot exceed Rs.50 Lakh. |
Eligibility Criteria for Housing Loan Tax Benefits
Home Loan tax deduction is applicable for residents and NRI individuals. It is not applicable for HUF (Hindu United Families), AOP, a company, or any other kind of taxpayer who is not an individual.
Here are other eligibility criteria according to the respective sections:
| Section | Criteria |
|---|---|
| Section 24(b) | Home Loans should have been taken before 31 March 2022 |
| Section 80C | The property should not be sold within 5 years of completion |
| Section 80EE | The loan amount should be up to Rs.35 Lakh or less |
Tax Deductions on Interest Paid on Home Loan
Following are the ways in which you can save the income tax payable on your Home Loan interest payments every year:
Tax Benefits Under Section 24(b)
- The interest claimed under Section 24(b) can go up to Rs.2 Lakh for self-occupied properties
- The interest paid on a Home Loan for a rented residential property can be claimed without any upper limit; claims can only go up to only Rs.2 Lakh under ‘Housing Properties’ in a year
- The interest claimed under Section 24(b) has to be calculated on an accrual basis, which means that even if you don’t actually pay the amount that year (in case of a moratorium), you can still claim the amount as a deduction
- Joint Home Loan borrowers can claim a rebate of up to Rs.2 Lakh each, provided they contribute to the EMI payments and are the co-owners of the property
- A certificate detailing the Home Loan interest calculations is mandatory to claim the deductions
- In the case of an under-construction property, the construction work must be completed within 5 years of borrowing the Home Loan amount
- Interest deductions on an under-construction property can begin from the year the construction has ended
- The interest deduction will be restricted to Rs.30,000 if the construction of the property is not completed within the first 5 years of borrowing the Home Loan
Note that homebuyers who have funded the purchase of their property out of their own pocket are also eligible for claims under Section 24(b) (not applicable on self-occupied properties).
Tax Benefits Under Section 80EE
- Tax benefits under Section 80EE can be claimed only after exhausting the interest waivers under Section 24(b)
- Tax Exemption under 80EE for a housing loan can be claimed by first-time homebuyers only
- The Home Loan amount cannot exceed a valuation of Rs.35 Lakh and the property’s value cannot exceed Rs.50 Lakh
Tax Deductions on Home Loan Principal Repayment
Listed below are the tax provisions under which you can claim benefits for the principal component of your Home Loan repayment:
Tax Benefits Under Section 80C
- The maximum deductions claimed under Section 80C cannot exceed Rs.1.5 Lakh
- In the case of Joint Home Loans, all borrowers can claim Rs.1.5 Lakh individually if they all contribute toward the Home Loan EMI and are co-owners of the property
- Spouses who wish to claim a deduction under section 80C must also be co-borrowers and co-owners of the property
- Claims under Section 80C are given on a payment basis, which means that beneficiaries should have made a Home Loan principal amount payment as a part of their Home Loan repayment, in order to seek the benefit. It is not calculated upon projections
- Home Loans taken for the construction of a new residence will only be eligible for a rebate if the construction is completed within 5 years of taking the Home Loan principal
- The property for which the Home Loan claims have been made, cannot be sold within the first 5 years of possession. If the property in question is sold, all tax subsidies will be reversed and considered as income
- Stamp Duty and property registration charges can also be claimed under Section 80C, provided it is done in the same year the costs were borne. However, the claim must fall within the Rs.1.5 Lakh limit that is extended under Section 80C
*Terms and conditions apply.
Home Loan Tax Benefits for Women Homebuyers
Conditions for claiming housing loan tax exemption as a women homebuyer
Women homebuyers who have availed Home Loans or joint Home Loan are eligible for tax benefits. As per the old tax regime, in a joint Home Loan between a man and a woman, the woman can avail tax deductions separately. As a co-owner of property, she can claim IT deductions on both, principal and interest amounts.
According to Section 80C of the Income Tax Act, co-applicants can avail a benefit of up to Rs.1.5 Lakh each a year on the principal amount, and up to Rs.2 Lakh each on the interest paid. These concessions offered to women largely reduce the cost of buying a home.
Under the old tax regime, a first-time woman homebuyer can claim Rs.50,000 deduction on the principal, in addition to other claims under Section 80EE.
Home Loan Tax Benefits for Senior Citizens
Conditions for claiming Home Loan tax exemption as a senior citizen
According to the law, a senior citizen is an individual resident between the age group of 60 and 80 years at any time during the respective financial year. A super senior citizen is above 80 years of age. To claim tax benefits as senior citizens, you should fulfil the above age criteria.
FAQs
The eligibility criteria for claiming tax benefits on your Home Loan repayment are simple – one must have borrowed a Home Loan and be the legal owner of the residential property. In the case of a joint Home Loan, everybody must be equal co-borrowers and co-owners, including spouses.
You can avail a maximum deduction of Rs.30,000 on a Home Loan Top-up if you have receipts and documents proving that the Top-up Home Loan has been used for acquisition/ construction/repair/renovation of a residential property. The limit of Rs 30,000 is available for a self-occupied house only. In case repairs and renovations have been done on a let-out property, no deduction can be claimed.