The Government of India has always supported home ownership and encouraged the citizens of the country to invest in the real-estate sector. One of the ways the government promotes homeownership is by providing tax breaks on home loans.
Home loans are loans availed of primarily for buying an already-constructed or under-construction home. One cannot use the money availed of under a home loan to buy land. Home loans are paid in the form of EMIs, which comprise a principal component and an interest component. The interest component of the loan is the lender’s pay-out for taking the risk involved in lending money to the borrower. Home loans are long-term loans and the tenor for these loans can easily extend up to 30 years. The long repayment tenor makes it easy for the borrowers to repay the loan.
Home loans several advantages. To start with, they allow borrowers to afford their dream home. They also allow borrowers to buy a home in the present, before the property prices increase further, and pay for it in the future in a simple and stress-free manner. Further, the tax rebate on home loan can help borrowers save a considerable amount of money over the tenor of the loan. In this article, we look at the various home loan tax benefits available to homeowners these days and how home loan borrowers can benefit from these tax benefits.
Everything You Need to Know About Tax Rebate on Home Loans
Home loan borrowers can claim tax deductions under various sections of the Income Tax Act. These home loan tax benefits are available on both principal as well as the interest component of the home loan. Let us try and understand the tax rebate on home loan available to borrowers under various sections of the Income Tax Act.
Home Loan Tax Benefits Available Under Section 80C
Section 80C of the Income Tax Act deals with home loan tax benefits available on the principal component of the home loan. Under this section of the Income Tax Act, a borrower can claim home loan tax deductions up to a maximum of Rs.1.5 Lakh. If you have a second home and you are paying EMIs for this home as well, you can claim tax deductions on payments made towards principal repayment of this loan as well. However, do keep in mind that the Government has put a cap on tax deductions available under this section of the Income Tax Act and it does not matter how many home loans a borrower has, they cannot claim more than Rs.1.5 Lakh as tax benefits under this section of the Income Tax Act.
Home Loan Tax Benefits Under Section 24(b)
Section 24(b) of the Income Tax Act deals with tax deductions available on the interest component of the home loan. Under this section, borrowers can claim up to a maximum of Rs.2 Lakh as home loan tax benefits. If a home loan borrower has a second home that is self-occupied or occupied by parents, they can claim tax deductions on this second loan as well. However, the maximum limit for tax deductions under this section is Rs.2 Lakh.
Married couples who have taken a joint home loan must know that they can claim tax benefits under Section 80C as well as Section 24(b) of the Income Tax Act separately. Thus, combined a married couple can enjoy tax rebate on home loan up to a maximum of Rs.7 Lakh in each financial year.
Tax Rebate on Home Loan Under Section 80EE
This tax rebate on home loan is available to first-time homebuyers and home loan borrowers who had availed of a home loan in the fiscal year 2016-17. Under this section, home loan borrowers can claim an additional tax exemption of Rs.50,000. However, to be able to do so, they should meet certain conditions. To start with, they must have taken the loan between April 1, 2016 and March 31, 2017. Further, the value of the home must not be higher than Rs.50 Lakh and the loan value must not exceed Rs.35 Lakh.
Additional Tax Deductions Available Under Section 80EEA
Under this section of the Income Tax Act, home loan borrowers can claim an additional tax deduction up to a maximum of Rs.1.5 Lakh on payments made towards interest repayment, provided they meet the following conditions. To start with, they must have availed of a loan between April 1, 2019 and March 31, 2020 and on the day of the sanctioning of the loan, they must not have had any other home under their name. The value of the home to buy which the loan had been taken must not exceed Rs.45 Lakh. Lastly, only those borrowers can claim deductions under this section who are not eligible to claim any extra deductions available under Section 80EE.
Final Words
Home loans offer several advantages and one of the most important of these advantages are home loan tax benefits. A home loan will help you save a lot of money over the tenor of the loan by way of home loan tax benefits. So, if you are planning to avail a home loan to buy a home, go ahead, you are making a smart decision. More importantly, do not forget to use an income tax calculator at the beginning of the financial year to plan your other investments in such a way that you can save maximum by way of the various tax benefits available to the citizens of India. Also, remember to do your research and negotiate hard with your lender for a good home loan interest rate deal. After all, a low interest rate makes repaying a loan far easier.