In the Union Budget of 2021, the Government of India decided to extend additional tax deductions on the amount of interest paid against home loans availed to finance affordable housing for another year.
The decision is considered one of the accommodative stances of the authoritative body to facilitate borrowing and boost economic growth.
- Another accommodative measure includes a series of repo rate cuts in 2020 to control inflation and increase liquidity.
- Reduction of home loan interest rates, bringing them down to less than 7% in 15 years in response to repo cuts and other reformative government policies.
Collectively, these measures have helped intending home buyers to avail credits against easier terms. Notably, besides this, borrowers are also entitled to receive home loan tax benefits on the borrowed amount and interest payable under several Sections of the Income Tax Act, 1961. To benefit from them accordingly, individuals should find out about the applicable tax benefits beforehand.
Tax benefits on housing loans:
These pointers below provide an insight into the different tax benefits that are available to home loan borrowers –
- Deductions on the repaid home loan principal amount
Under Section 80C of the ITA, borrowers can claim tax deductions on the principal amount already repaid. Note that such a deduction can be claimed only for self-occupied property.
In case borrowers have another house that is either occupied by their parents or have been left empty, the property would be considered as self-occupied. This makes both properties (on a home loan) eligible for deductions of up to Rs.1.5 lakh.
Furthermore, note that deductions under Section 80C can be claimed on registration charges and stamp duty paid when purchasing a home.
- Deductions on the paid interest amount
Under Section 24 (b) of the Income Tax Act, 1961, borrowers can claim deductions of up to Rs.2 lakh on the interest amount paid on a housing loan. Such a home loan tax benefit is only available on self-occupied properties (including a second home occupied by parents or left empty).
Note that the total amount of interest paid should not exceed Rs.2 lakh in a given fiscal year. Furthermore, the construction of the property in question must be completed within 5 years; failing to do so would allow borrowers to claim only up to Rs.30,000 as a deduction.
- Applicable deductions on affordable housing
- Properties valued under Rs.45 lakh come under the category of affordable and housing.
Individuals who have availed a loan to purchase an affordable house are entitled to claim home loan tax benefits up to Rs.1.5 lakh under Section 80EEA. Note that this benefit has been made available on top of the tax deduction under Sec 24(b).
So, this means if a home loan borrower who is eligible to claim deductions of up to Rs.2 lakh in a fiscal year under Sec 24(b) can also claim a deduction of up to Rs.1.5 lakh. Collectively, he/she can claim a total deduction of up to Rs.3.5 lakh in a fiscal year if the purchased property is categorised as an affordable house.
It must be noted that home buyers should have availed the loan between 1st April 2019 and 31st March 2022. Also, they cannot claim deductions twice under these sections. Suppose, if an individual has paid Rs.1.2 lakh as interest on housing loans, he/she can claim it either under Section 80EEA or under Sec (24 b).
- Deductions on joint housing loans
Borrowers who had opted for a joint home loan can claim up to Rs.2 lakh on paid interest amount and up to Rs.1.5 lakh on repaid principal amount individually in their ITR. However, to claim the home loan tax benefits accordingly, both applicants must be co-owners of the property. Furthermore, co-applying for a loan allows applicants to enjoy low-interest rates, impacting home loan EMI significantly.
- Available deductions under Sec 80EE
Individuals who had applied for a housing loan in the 2016-2017 fiscal year can claim tax deductions of a maximum of Rs.50,000 under Section 80EE. This deduction of Rs.50,000 was introduced in the Union Budget of 2016 and can be claimed up to a limit of Rs.2 lakh. Note that this benefit is available only to first-time home buyers. Also, the house’s value should not exceed Rs.50 lakh and the loan availed to finance it should be more than Rs.35 lakh.
First time home buyers can further save on their loan burden by availing a home loan from a financial institution that extends funds at competitive home loan interest rates and is transparent about levying additional charges.
They also provide customers with lucrative pre-approved offers that simplify the borrowing experience. Generally, such offers are available on financial products like loans against property, home loans, etc. Check your pre-approved offer now online with your name and mobile number.
Intending borrowers may consider using a home loan EMI calculator to determine their monthly instalment and compare different loan options more conveniently. The same tool can help them ascertain their overall loan interest and will allow them to check out the applicable tax benefits. Gaining an idea about the applicable home loan tax benefits will help individuals streamline the claim process and manage finances with more efficiency.
