How to save tax on home loan? – Home loan tax benefit

save-tax-home-loan

So you have finally achieved your goal of owning a house after a prominent bank has funded your dream. Are you aware that buying a house loan actually has a lot of tax benefits? Under some sections like Section 80C and Section 24, a lot of tax reimbursement options are available which when leveraged correctly, can yield revenues for you.

There are different ways for you to claim tax deduction:

1.Tax deduction on the principal repayment of the loan:

Section 80C: Under this section, you can claim up to ₹150000 per year when you file for IT returns on the principal amount you pay in your EMIs.

To qualify under this section:

  • The home loan must be bought for purchasing a new property or construction of a property.
  • Tax benefits for the principal are allowed only after the construction is complete.
  • The property must not be sold for the next five years after you bought it. Otherwise, the deductions will be added to your income again in the year of sale.

Expenses such as stamp duty and registration are also allowed for deduction under Section 80C but only in the year in which the expenses are paid for.

2.Tax deduction on interest of the loan:

Section 24: Under this section, home owners can claim up to ₹2 Lakhs when filing for returns on the home loan interest if the owner resides in the house or if the house is vacant. If the property is rented out, the entire interest on the home loan is eligible for deduction until 2016-2018 but from 2017-2018 the limit is ₹2 Lakh. This deduction is to be claimed from the financial year in which the construction or purchase is complete.

To qualify under this section:

  • The home loan must be bought for purchasing a new property or construction of a property.
  • The home loan must be availed on or after April 1, 1999
  • The construction of the house or purchase must be done within 5 years of availing the loan.

If any of the above conditions are not fulfilled, then the deduction will be restricted to ₹30000. Let us assume that you have taken a loan on April 30, 2015. A period of 5 is calculated from the end of the financial year in which the loan was taken – in this case, the three year period extends until March 31, 2021. If the construction of the house is not completed within this date, then the deduction on the home loan interest will be reduced to ₹30000.

Also, this section offers 2 Lakh returns only for construction or buying of new property. In lieu of loans taken for repairs/reconstruction, only ₹30000 are allowed for deduction.

3.Deductions available for first time home owners:

Section 80EE: Under this section, first time home-owners can benefit up to ₹50,000.

To claim this deduction:

  • The property value should be 50 L and amount taken as loan should not exceed ₹35,00,000.
  • On the date the loan was sanctioned, the individual must not own any other house

4.Deduction for joint home loan:

A joint loan taken along with your family can claim you larger tax benefit under Section 80C. When a joint loan is taken, each member can claim principle repayment up to ₹1.5Lakh and interest up to ₹2Lakh each.

To claim this deduction:

  • The loan takers must be co-owners of the property
  • The individual must be co-borrower of the loan


A short recap:

Deductions available
Sections by Law
Maximum deduction allowed
​Principal ​80C ​₹1,50,000 / Year
​Stamp Duty​80C​₹1,50,000
​Interest​24B​₹2,00,000/Year
​Interest
​80EE​₹50,000

 In case the property is under construction, the loan treatment varies and the tax exemptions cannot be applied. You can claim deductions only after the construction is complete (including the pre-construction interest). To claim deductions, you will be needed to submit the statement from the bank stating clearly the principle and interest of the loan

 

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