The Government of India offers several home loan tax benefits under the Income Tax Act of 1961 to encourage individuals to invest in a residential property. Before availing a housing loan, one should be aware of the tax benefits to save a notable amount on the payment of the taxes.
Instead of calculating manually, one can use a home loan tax benefit calculator to work out their tax savings. To find out how much an individual can save on tax, one needs to enter their annual income other than yearly interest and principal payments.
A home loan comprises of repayment of the principal amount and EMIs. An individual can avail housing loan tax benefits under Section 80(C) and 24(b) of the Income Tax Act.
Tax exemption on the interest paid for home loans
If it is a self-occupied property, a maximum exemption of Rs.2 lakh can be claimed from his/her annual income under section 24(b) of the Income Tax Act., provided the construction of the house is complete within 5 years. But in case the time period exceeds the threshold, the tax exemptions claimable is reduced to Rs.30,000 per year. In case it is a let-out property, one can claim the whole interest amount without any upper limit, and there is no time constraint within which the construction has to be completed.
Exemption on the interest paid during the pre-construction phase
An individual cannot claim tax benefits during the pre-construction period even if he/she has started repaying the EMI’s. However, exemption in 5 equal instalments can be claimed from the year in which he/she moves in, or when the construction is complete. Here also the maximum eligibility is Rs.2 lakh.
Exemption on repayment of the principal amount
Under Section 80(C) home loan tax benefits amounting up to Rs.1.5 lakh is effective on refund of the principal amount. But to claim such exemption, one cannot sell the property within 5 years of acquisition. Failing which the benefit claimed will be included in the income in the year of selling the property.
Exemption for stamp duty and registration charges
A benefit for stamp duty and registration charges can be claimed under Section 80(C) within the limit of 1.5 lakh. Moreover, it can only be asserted in the year in which these expenses took place.
Exemption under section 80EE
An additional benefit under Section 80EE is available for a maximum up to Rs.50,000 for home loan interest. To claim this exemption, an individual has to avail a loan of Rs.35 lakh and the property value should not be more than Rs.50 lakh. This tax exemption has been reintroduced from the financial year 2016-2017.
Exemption under section 80EEA
Another benefit up to Rs.1,50,000 is available for home buyers under Section 80EEA. To claim this benefit, the stamp value of a property should not go over Rs.45 lakh, and on the date of loan approval, the buyer should not own any other residential property. However, the individual is not eligible to claim exemptions under Section 80EE. This benefit has been introduced in Budget 2019.
Exemption for a joint home loan
Tax benefits for joint home loan can be claimed, provided that they are co-owners of the property as well as co-borrowers of the loan. In some cases a nearest family member joins a borrower, without having any share in the property. In such an instance, the person who is not a joint owner cannot claim any tax exemptions.
Individuals who are planning to buy homes on credit must remain aware of the above mentioned home loan tax benefits. These tax savings will help to decrease the Income Tax liability of an individual for a particular financial year.