Tax Savings on Home Loans: Here is How You Can Enjoy Them

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Tax Savings on Home Loans: Here is How You Can Enjoy Them

You have just purchased a house, and you want to celebrate with your friends and family. Well, you will be delighted to know that you have another rea

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You have just purchased a house, and you want to celebrate with your friends and family. Well, you will be delighted to know that you have another reason to celebrate, that is, the various tax benefits that you can claim!

The Indian government encourages its residents to invest in a house property by providing many tax benefits for anyone who supports a house property by taking a home loan. The various benefits are given in the Income Tax Act, 1961.

You get deductions under Section 80C for the principal amount and interest deduction of up to Rs 2 lakh under section 24. Further, new sections, Section 80EE and 80EEA, have been introduced to encourage residents to invest in house property.

Who is eligible?

To claim home loan tax deductions, a borrower must be the owner of the property so financed. However, in the case of a joint home loan, all co-borrowers can enjoy such benefits individually if they are co-owners of such property.

Deductions available:

  1. up to Rs 1.5 lakh under section 80C for principal repayment (along with other eligible investments)
  2. Upto Rs. 1.5 lakh under section 80EEA for first-time buyers (other conditions to be fulfilled).
  3. Upto Rs. 2 lakh under section 24 for interest paid on home loan against a self-occupied house, there is no such limit for let-out property.

Interest paid on housing loan during pre-construction period:

Suppose you have purchased a property that is still under construction and have taken a loan for the same. In that case, the interest you pay during the construction period is also deductible in five equal installments beginning from the year the property is acquired or construction is completed. It is important to note that the construction period must not exceed five years.

Stamp Duty and registration charges:

You can take a deduction under section 80C (overall 1.5 lakh) even for the stamp duty and registration charges paid. These expenses can be claimed in the year in which they are incurred. 

Deduction for a joint home loan:

All the joint owners of house property can claim home loan tax exemptions if they fulfill the following criteria:

  1. Ownership of the property: The joint home loan borrowers must also have joint ownership of such property.
  2. Loan Liability: The joint owners must be co-borrowers and assume the liability to repay the home loan proportionally or equally to claim the tax benefits. You will not be eligible for the tax benefits if you are merely a co-signer to the home loan.

If the above conditions are satisfied, each joint home loan borrower can claim interest benefits of up to Rs 2 lakh under section 24 and Rs 1.5 lakh (including all other eligible deductions) under section 80C for principal repayment.

So if you are planning to avail a home loan to purchase a house property, you should go for it as apart from creating an appreciating asset at a low-interest rate, you can also save on taxes!

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