If like millions of people around the world, you too availed of a home loan to buy a home, you must avail of home loan tax benefits as well. The Government of India has always promoted home ownership through incentives and by providing rebates to homebuyers. Home loan tax benefits is an important incentive provided by the Government of India to homebuyers that home buyers can use to save a considerable amount of money in taxes each year. Unfortunately, not everyone who avails of a home loan makes use of these tax benefits because most people are not familiar with the various sections of the Income Tax Act that deal with tax deductions on home loans.
Every citizen of India must pay taxes to the Indian government. The government follows a slab system. In other words, the tax that a taxpayer must pay depends on the income slab they belong to. Obviously, people earning more pay higher taxes, and vice versa. The government of India also offers certain tax benefits. It does so to encourage taxpayers to invest in tax-saving instruments. For instance, taxpayers can claim tax rebate on payments made towards health insurance premiums, ELSS, tax-saving pension schemes, etc. These tax rebates allow citizens of India to save on their taxes. Home loan tax benefits allow taxpayers to save lakhs in taxes each year.
Home buyers must claim tax benefits primarily for two different reasons. First, home loan tax benefits allow home buyers to save a lot of money in taxes each year. Borrowers can invest this money in other tax-saving instruments to build a retirement corpus or enjoy good returns on their investments and use these returns to fulfill life's basic necessities.
Second, your home loan tax reclaim receipts also serve as proof of your homeownership, and though they are not the most asked-for document in case of a legal hassle, they can work to your advantage.
Now that we know about the importance of claiming home loan tax benefits, let us look at how borrowers can claim these tax benefits.
Tax Benefits Available to Home Buyers Under Income Tax Act
1. Section 80C of the Income Tax Act
Section 80C of the Income Tax Act allows HUFs and individual taxpayers to save up to Rs.1.5 Lakh in taxes. This section of the Income Tax Act covers several different tax saving instruments, such as equity-linked saving schemes, NSC, SCSS, etc. Payments made towards the repayment of the principal component of a home loan can also be claimed as tax rebate under this section of the Income Tax Act. Further, one can also claim tax benefit on payments made towards stamp duty and registration charges. However, these tax claims can be made only in the year in which the homeowner bought and registered their house. Further, one must keep in mind that the maximum limit available under this section of the ITA is Rs.1.5 Lakh.
However, there are certain conditions that must me met if wishes to avail of tax benefits under this section of the Income Tax Act. Home loan borrowers can claim home loan tax deductions under Section 80C only after the construction of the house has been completed. Further, there is another condition that homebuyers must know about -- if they sell their house within five years of buying it, all home loan tax benefits they had availed of under Section 80C automatically get reversed.
2. Section 24b of the Income Tax Act
Unlike Section 80C of the Income Tax Act, which deals with several different tax-saving instruments, section 24b of the Income Tax Act deals primarily with tax benefits available on the interest component of a home loan. Under this section, borrowers can claim tax benefits up to a maximum of Rs.2 Lakh on payments made towards the repayment of the interest component of the home loan. If a borrower has more than one home loan, they can claim tax benefit on payments they are making towards the interest component repayment of both the home loans. However, the maximum deduction available under Section 24b is Rs.2 Lakh, irrespective of how many different home loans a borrower is repaying.
3. Home Loan Tax Benefits Under Section 80EE of the Income Tax Act
Borrowers who had availed of a home loan between April 1, 2016 and March 31, 2017 can claim an additional tax rebate of up to Rs.50,000 under Section 80EE of the Income Tax Act. However, one can claim tax benefits under this section only if they have spent money on affordable housing and the cost of the home they have bought with the loan money does not exceed Rs.50 Lakh and the value of the loan does not exceed Rs.35 Lakh. Further, home loan tax benefits under Section 80EE are available only to first-time homebuyers.
4. Section 80EEA of the Income Tax Act
First time homebuyers who had availed of a home loan between April 1, 2019 and March 31, 2022 can avail of additional home loan tax benefits under Section 80EEA of the Income Tax Act. This tax benefit is available only to first-time homebuyers and only if the stamp value of the property does not exceed Rs.45 Lakh.
Home Loan Tax Benefits on Joint Home Loans
While we are talking about home loan tax benefits, here is another thing that borrowers must know -- in the case of joint home loans availed of by a husband and wife, both the husband and wife can claim tax benefits separately under Section 80C and Section 24b of the Income Tax Act.
Thus, combined, a husband and wife can claim tax benefits up to a maximum of Rs.7 Lakh in each financial year by way of home finance. These tax savings get further amplified if the couple are first-time homeowners and are eligible to claim additional deductions under Section 80EEA.
Final Words
A home loan is a boon, especially now when property prices are touching new heights with each passing day. Home loans allow potential homebuyers to afford their dream home without worrying about paying the entire cost of a home in one go. With the help of a home loan, a borrower can pay for a home slowly and conveniently. Further, home loans bring along with themselves tax benefits that allow borrowers to save a considerable amount of money in taxes each year. Home loan borrowers must familiarize themselves with the various sections of the Income Tax Act and make sure they are using the various home loan tax benefits available to them to their best advantage.