Income tax benefit on home loan- What you should know

Wondering about the income tax benefit on home loan? There are several benefits that you can actually avail in this regard.

When it comes to income tax benefits on home loans, there are quite a few available which will help you save greatly on your tax liabilities. Home loans will help you save considerably on taxes as per the guidelines of the Income Tax Act of 1961. One key thing to remember is that while tax benefits remain the same for home loans, the deadline for getting affordable housing loans has been increased till the 31^st of March, 2021. A home loan may sometimes be a costly affair although the tax savings may make up for the same as well.

A brief look at income tax benefits on home loans

Checking out this table will help you get a better picture into the tax benefits that can be availed on home loans:

Here are some other aspects that you need to absorb in this regard:

• If you have a self-occupied property, the maximum deduction up to Rs. 2 lakh can be availed although letting out the property on rent means that the deduction amount does not have any limit.
• If both spouses are co-owners and co-borrowers of the home loan, both can individually claim the maximum amounts under these sections.
• The deduction of Rs. 2 lakh on interest repayment will only be applicable in case the property has been completed in terms of construction, within a period of 5 years. In case of non-completion of construction within this duration, you can get a maximum deduction of Rs. 30,000 only.
• For rental properties, the interest repayment can be claimed without any limits irrespective of whether the property has been completed or not.

Section 80C deductions- Income tax benefit on home loans

• You can claim deductions up to Rs. 1.5 lakh on the principal amount repaid on home loans for properties which are let-out or self-occupied every year.
• The construction of the property should be completed before the deduction is claimed.
• The house should not be sold within 5 years after possession in order to claim this particular deduction.
• If you sell the house within 5 years post possession, deductions claimed will then be reversed in the year that you sell the property. The amount will be added to your own income for the year of sale as well.
• Co-owners and co-borrowers can each claim deductions up to Rs. 1.5 lakh.
• Registration fees and stamp duty paid for the property can also be claimed for deductions under Section 80C.

Section 80EE deductions- What you need to know

• You should have taken the home loan between 1^st April 2016 and 31^st March 2017.
• The valuation of the property should be lower than Rs. 50 lakh.
• The home loan amount should be lower than Rs. 35 lakh.
• You can get additional interest of Rs. 50,000 every year until the home loan is repaid.
• Only first-time homebuyers are eligible to get benefits under this section.

Second Property Ownership- Are there income tax benefits on home loans?

Based on the prevalent guidelines, if you possess more than one self-occupied property, only one will be taken as self-occupied. For the other property in question, you will have to pay taxes on the basis of notional rental income. You can choose between both of your properties with regard to classifying one of them as self-occupied and the other as the one where taxes will apply. Based on the Union Budget announced in February, 2019, the Finance Minister proposed that the second self-occupied home may also be claimed as self-occupied one instead of notional rental assumptions.

This will prevent any tax incidence based on notional rent assumption, helping second owners mop up higher savings in the bargain. This will help you claim tax deductions that are applicable for the second home as well.

Tax Benefits and their relation to HRA (House Rent Allowance)

Along with checking out income tax benefit on home loans, you should also take a look at the relation of the same to your house rent allowance (House Rent Allowance). Suppose you are living in a rented home while having taken a home loan for your own residential unit. In such a scenario, you will get tax deductions on your home loan while also being eligible to claim HRA (house rent allowance) deductions for the rent that is being paid.

However, keep in mind that this deduction only applies if you are living in the home that you have rented. You cannot make claims even if the dependent family members are residing in the rented premises without you being present. HRA can be claimed based upon the lowest value of the actual HRA amount paid by the employer, 50% of the salary in case you are living in a metro city or 40% if you are living in other cities and actual rent deducted from 10% of the salary.

Major FAQs that you should keep in mind