Owning a house is every individual’s dream. In order to encourage citizens to invest in a property, the Government provides various tax benefits under the Income Tax Act of 1961.It is important to be aware of all the home loan tax benefits as it can help you save a significant amount of your tax payments.

A home loan comprises of both principal repayment and interest payments. Tax deductions can be availed under both these categories under section 80(c) and section 24(b) of the Income Tax Act respectively.

Tax deductions on principal repaymentTax deductions on
principal repayment

Under section 80(c) of the Income Tax Act, tax deduction of a maximum amount of up to Rs 1.5 lakh can be availed per financial year on the principal repayment portion of the EMI. This deduction can only be availed after the construction of the property is complete. Note: if you sell your property within 5 years of getting possession, this benefit will be reversed.It is therefore important to be aware of the time frame guideline.

Deduction for stamp duty and registration chargesDeduction for stamp duty and
registration charges

Tax deduction under section 80(c) can be claimed for stamp duty and registration fees as well but it has to be within the overall limit of Rs 1.5 lakh applied to principal repayment. This benefit can be availed regardless of whether you take a home loan or not. Furthermore, this benefit can only be availed in the year these expenses are incurred.

Tax deduction on interest paidTax deduction on interest paid

Apart from the benefits available for principal repayment, you can avail deduction on the interest paid on your home loan under section 24(b) of the Income Tax Act, 1961. For a self-occupied house, the maximum deduction of Rs 2 lakh can be claimed from your gross income annually, provided the construction of the house is completed within 5 years. In case the construction period exceeds the stipulated time frame, you can claim deductions of only Rs 30,000 annually. On the other hand, if you have let out your property on rent, the entire amount of interest paid on your home loan can be claimed as tax deduction; additionally, there is no time limit stipulated within which the construction of the property should be completed.

Deduction for first time home buyersDeduction for first time home buyers

In addition to the deductions mentioned above, there are further benefits available for first time buyers under section 80EE where you can claim an additional interest amount of up to Rs 50,000 annually until your loan is repaid. This deduction is only available for loans taken between 1st April 2016 and 31st March 2017. Further, the loan amount should not exceed Rs. 35 lakh and the value of the property should be less than Rs. 50 lakh.

Deduction for first time home buyers

Deduction for joint home loanDeduction for joint home loan

In order to utilise the available deductions to the fullest, it is advisable to apply for a joint home loan as each person can claim interest deduction up to Rs 2 lakh and tax deduction on the principal up to Rs 1.5 lakh which doubles the amount of deductions available when compared to a loan taken by a single applicant. It is however required that both the applicants should be co-owners of the property.

HRA and home loan benefitsHRA and home loan benefits

In a situation where you have taken a home loan and are staying at a rented house at the same time, you can avail all the tax deductions pertaining to home loans as well as avail benefits of your House Rent Allowance. HRA can be claimed depending on the lowest value of:

  • The actual HRA that you receive from your employer
  • 50 per cent of your salary if you are resident in a metro city or 40 per cent for other cities
  • The actual rent minus 10 per cent of your salary

Tax benefits of owning a second propertyTax benefits of owning a
second property

As per the financial budget 2019, the Government has provided further incentives for investing in house property. Earlier, only one property could be treated as self-occupied and in case of a second property, notional rent was calculated and charged as income. This charging of rent on the second self-occupied property has been waived off in the current financial budget.

Although a home loan comes with a financial cost, using your loan smartly can greatly help in reducing your financial burden and help you maximise your tax deductions.

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