How to Save Tax on a Home Loan in India?

A home loan is a type of loan that is used to finance a residential property. It is typically offered by a bank or other financial institutions but can also be offered by other regulated lending institutions. A home loan offers several advantages. It is an easy and convenient way to cover the costs of a home, including construction, renovation, repairs, and extension. Further, it also provides tax benefits. For the ones unaware of how to save tax on a home loan, here is a detailed guide that can help.

Income Tax benefit on home loan

The Government of India offers tax savings under various sections of the Income Tax Act 1961. Taxpayers can avail of these provisions and save tax depending on the type, duration, and value of their loans. The government considers the home loan principal as well as the interest paid for the purpose of taxation.

Income tax saving on home loan principal amount

Taxpayers can claim a tax deduction on the home loan principal amount, stamp duty, and registration charges under Section 80C. The maximum deduction available for the same is ₹1.5 lakhs per financial year. Taxpayers can claim this deduction only if the concerned property is not sold within five years of possession. If the taxpayer sells it within five years from the date of possession, all the tax benefits availed under Section 80C in the preceding years will be reversed and taxed in the present year.  

Another important thing to note is that the ₹1.5 lakhs deduction is a combined limit for all tax-saving instruments under Section 80C. This includes life insurance premiums, National Savings Certificate, Public Provident Fund, subscription to certain equity shares, etc. For example, if a taxpayer contributes ₹60,000 to the Public Provident Fund, ₹10,000 towards life insurance premiums, and takes a loan of ₹20 lakhs for a home in the same financial year, the total tax deduction for all of these will be capped at ₹1.5 lakhs.

Tax savings on home loan interest

Taxpayers can claim additional tax deductions under Section 24(b). Here are the details for the same:

Self-occupied properties bought on or after April 01, 1999:

  • Up to ₹2,00,000 for the construction or purchase of a house property
  • Up to ₹30,000 for repairs of a house property

Self-occupied properties bought before April 01, 1999:

  • Up to ₹30,000 for the construction or purchase of a house property             
  • Up to ₹30,000 for repairs of a house property

Properties for let out for rent:

Actual value without any limit for the construction or purchase of house property. In addition to this, home buyers can also claim a deduction under Section 80EE towards the interest paid for a home loan sanctioned between April 01, 2016 and March 31, 2017. The maximum limit for the same is ₹50,000.

Furthermore, Section 80EEA allows a tax deduction of up to ₹1.5 lakhs on the interest paid towards a loan sanctioned between April 01, 2019, and March 31, 2022. However, this is only applicable to first-time home buyers, provided they have not already claimed a tax deduction under Section 80EE. Additionally, the stamp duty value of the concerned house should not be higher than ₹45 lakhs.

How much tax can be saved on a home loan in total?

Taxpayers can save up to the maximum limit under all of these sections, depending on the value of their loans, the purpose of the loan, other tax savings, and whether or not it is their first home purchase. In the case of joint loans where both borrowers are co-owners of the house, each borrower can claim applicable income tax deductions and save double the amount.  

How can borrowers claim tax savings on home loans?

Taxpayers need to furnish proof of payment of the home loan interest, such as the home loan interest certificate and submit it to the Income Tax Department when filing their Income Tax Returns. This certificate contains the personal details of the borrowers, the schedule of the EMI (Equated Monthly Instalment) payments, ownership, and other relevant details.

To sum it up

The income tax benefit on home loans is an excellent advantage for home buyers. However, it is important to note that these tax deductions are subject to certain conditions and limits specified under the Income Tax Act 1961 and may change from time to time. Therefore, it is always a good idea to consult with a tax professional or refer to the official Income Tax Department website for the latest guidelines before claiming any tax deductions or planning a house purchase.

Disclaimer- This article is based on the information publicly available for general use as well as reference links mentioned herein. We do not claim any responsibility regarding the genuineness of the same. The information provided herein does not, and is not intended to, constitute legal advice; instead, it is for general informational purposes only. We expressly disclaim any liability, which may arise due to any decision taken by any person/s basis the article hereof. Readers should obtain separate advice with respect to any particular information provided herein.

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