tax benefit on home loan

3 Tax Saving Benefits on Home Loans That You Must Know

Income Tax: Dread it, run from it, and yet it arrives all the same.

The share that the government takes from your personal income may not seem a serious fare if you are a fresher but as you rise in ranks in career and income group, you will surely begin to experience a serious pinch every time you file your IT returns.

Fortunately, with smart investments, you can forego your income tax up to a certain extent i.e. you can save your tax money, by making smart investments. So what are smart investments? An Investment is a big lesion in itself but to make it simple for you: real estate is a smart investment.

Yes, the Government of India with its tax laws allows a taxpayer benefit from tax exemptions especially if he/she wants to invest in a property by availing a home loan. 

These tax exemptions can be leveraged in the form of tax deductions on home loan payment of principal, interest, stamp duty, or other expenses. Here are some of the tax benefits on home loan you can leverage to save your tax money:

Tax benefit on home loan you should know:

Tax Deduction on Principal Repayment, Stamp duty & Registration – Section 80C:

Under Section 80C, up to Rs 1.5 lakh can be claimed as a tax deduction on the principal amount paid on your home loan for a financial year if you satisfy two conditions:

  1. The loan should be availed for the construction or purchase of a new house.
  2. The house should not be sold with-in 5 years of possession or completion of construction.

In addition to a tax deduction on the principal repayment of the loan, you can also claim for a tax deduction on the registration charges and stamp duty in that particular financial year you incurred these expenses. And you can claim tax reduction under 80c only on principle or other expenses incurred after construction or possession of your house.

Tax Deduction on Interest Paid on Home Loan – Section 24:

The interest portion of your home loan you pay every month can also be used for tax deduction under section 24. Up to Rs 2 lakh can be claimed for a tax deduction on the interest you have paid on your property for a financial year. Just like for section 80c, section 24 also applies under the same two conditions: the loan must be availed for construction or purchase of the house and the possession/construction must happen within 5 years from the end of the financial year in which the housing loan is taken. And in case that doesn’t happen, you can claim only a maximum of Rs 30,000 for a financial year as tax reduction for the interests paid.

Additional Tax Deduction – Section 88EE & 88EEA: 

In addition to the tax deductions under the above sections, you can also claim additional tax dedication up to Rs 50,000 in case you are a first-time buyer. However, to avail deduction under this section a buyer has to satisfy the following conditions:

  1. Housing loan taken must not exceed 35 lakhs and the property value must not exceed Rs 50 lakh.
  2. The loan must have been sanctioned between April 1, 2016, and March 31st, 2017.
  3. The buyer must not own any other house as of the date of loan sanction.

As section 88EE was only available for a limited number of buyers who got their loan sanctioned before 2017, a new section 88EEA was introduced in budget 2019. And under this section a buyer can avail an addition tax deception of up to Rs 1.5 lakh (maximum) under two conditions: 

  1. The stamp duty must not exceed Rs 45 lakh and the buyer should not own any house as of the date of loan sanction.
  2. The home loan must have been sanctioned between April 1, 2019, and March 31st, 2020

With the advent of new tax slabs, the future of the tax deduction can be uncertain. But as taxpayers are given an option to choose between old and new tax slabs, this could be the right time for you to take the first step towards buying a new home for your family.

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