Home Loan Tax Benefits

Last Updated at: October 23, 2019
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Home Loan Tax Benefits

Being able to own a home is a dream that most people have. While it might not be the easiest to achieve, it is one of the most integral parts of our lives. Most people you see around you toil day and night to accumulate enough money to get a place of their own; one they can call their home. The Indian government is well aware of this desire and hence, offers several benefits and schemes to help people accomplish their highest goal. One of the essential steps they have taken to ensure that people get a chance to own their own homes is providing tax benefits to people who have taken out a home loan in their names.

As per Section 80C, Indian citizens who have taken a home loan receive several benefits and refunds. Are you looking to buy a house of your own? Do you plan on taking out a loan to achieve this? If so, here’s a look at everything you need to know about Home loan tax benefits.

Banks Which Offer Home Loans

  1. ICICI Bank
  2. IDBI Bank
  3. HSBC Bank
  4. HDFC Bank
  5. Axis Bank
  6. State Bank of India
  7. Union Bank

Schemes such as Pradhan Mantri Jan Dhan Yojana help the rural and urban housing sector by making housing more affordable and accessible. Here’s a look at the major benefits they provide.

Deduction of Interest

A home loan is usually taken to purchase or construct a house, and the only binding rule is that the purchase or construction must be completed at least five years after the loan has been granted. EMIs for such loans have two major components; a principle and interest payment. The interest payment works as a tax deduction claim when you file your IT returns and hence help people pay less tax. As per Section 24, a maximum amount of Rs 2 lakhs can be claimed as a deduction using this method. This claim may be made for the year in which the proposed building is purchased or constructed.

File Your Taxes on time and stay Stress-free

Deduction While Construction Occurs

If you are paying interest or EMI for a property you have not moved into, you cannot claim your deduction till you do so. But this does not mean that you get no tax benefits while your dream home is being constructed. The pre-construction interest allows you to claim deductions in five instalments, from the day the construction begins. Thus every year, as you get closer to owning your dream home, you also get to claim deductions annually. Once again, as per laws, the maximum deduction you can claim is Rs 2 lakhs.

Deduction on Principal

As per Section 80C, the EMI you pay as principal repayment can also be used to claim tax deductions. As per laws, the maximum amount you can claim via this method is Rs 1.5 lakhs. If you are planning to claim this deduction, you must make sure you don’t sell your property in those five years.

Deduction on Stamp Duty

Other than deductions for principal and interest payment, a tax deduction is also allowed on stamp duty and other such registration expenses.  As per Section 80C, the overall deduction can reach up to a maximum cap of Rs 1.5 lakhs. But such deductions must be claimed the year in which they were incurred and not later or earlier.

Additional Deductions

As per Section 80EE, buyers can avail up to Rs 50,000 worth of benefits from the government. The loan taken out must be less than Rs 35 lakhs so as to be eligible for this deduction. It is also interesting to note that such inferences are only available if the property bought costs less than Rs 50 lakhs. Also, there is a time frame to be eligible for the deduction as the loans must be taken out between April 1st, 2016 and March 31st, 2017.

The new Budget, which was announced in 2019, has introduced an all-new deduction scheme which will help buyers avail benefits up to Rs 1.5 lakhs. This benefit makes use of Section 80EEA, and the eligibility criteria state that the property’s stamp value must be less than Rs 45 lakhs. The time frame for the deduction is between 1st April 2019 and 31st March 2020. Also, the buyer must not have any other property in his or her name when applying for this deduction.

Joint Home Loan Deduction

If the home loan is taken as joint custody, then each holder is eligible to claim a deduction up to a cap of Rs 2 lakhs each. For principal repayment, the maximum amount which can be claimed is Rs 1.5 lakhs. It is essential that all loan holders who apply for this deduction must also be a co-owner of the house.

Home Loan Tax Benefits

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Being able to own a home is a dream that most people have. While it might not be the easiest to achieve, it is one of the most integral parts of our lives. Most people you see around you toil day and night to accumulate enough money to get a place of their own; one they can call their home. The Indian government is well aware of this desire and hence, offers several benefits and schemes to help people accomplish their highest goal. One of the essential steps they have taken to ensure that people get a chance to own their own homes is providing tax benefits to people who have taken out a home loan in their names.

As per Section 80C, Indian citizens who have taken a home loan receive several benefits and refunds. Are you looking to buy a house of your own? Do you plan on taking out a loan to achieve this? If so, here’s a look at everything you need to know about Home loan tax benefits.

Banks Which Offer Home Loans

  1. ICICI Bank
  2. IDBI Bank
  3. HSBC Bank
  4. HDFC Bank
  5. Axis Bank
  6. State Bank of India
  7. Union Bank

Schemes such as Pradhan Mantri Jan Dhan Yojana help the rural and urban housing sector by making housing more affordable and accessible. Here’s a look at the major benefits they provide.

Deduction of Interest

A home loan is usually taken to purchase or construct a house, and the only binding rule is that the purchase or construction must be completed at least five years after the loan has been granted. EMIs for such loans have two major components; a principle and interest payment. The interest payment works as a tax deduction claim when you file your IT returns and hence help people pay less tax. As per Section 24, a maximum amount of Rs 2 lakhs can be claimed as a deduction using this method. This claim may be made for the year in which the proposed building is purchased or constructed.

File Your Taxes on time and stay Stress-free

Deduction While Construction Occurs

If you are paying interest or EMI for a property you have not moved into, you cannot claim your deduction till you do so. But this does not mean that you get no tax benefits while your dream home is being constructed. The pre-construction interest allows you to claim deductions in five instalments, from the day the construction begins. Thus every year, as you get closer to owning your dream home, you also get to claim deductions annually. Once again, as per laws, the maximum deduction you can claim is Rs 2 lakhs.

Deduction on Principal

As per Section 80C, the EMI you pay as principal repayment can also be used to claim tax deductions. As per laws, the maximum amount you can claim via this method is Rs 1.5 lakhs. If you are planning to claim this deduction, you must make sure you don’t sell your property in those five years.

Deduction on Stamp Duty

Other than deductions for principal and interest payment, a tax deduction is also allowed on stamp duty and other such registration expenses.  As per Section 80C, the overall deduction can reach up to a maximum cap of Rs 1.5 lakhs. But such deductions must be claimed the year in which they were incurred and not later or earlier.

Additional Deductions

As per Section 80EE, buyers can avail up to Rs 50,000 worth of benefits from the government. The loan taken out must be less than Rs 35 lakhs so as to be eligible for this deduction. It is also interesting to note that such inferences are only available if the property bought costs less than Rs 50 lakhs. Also, there is a time frame to be eligible for the deduction as the loans must be taken out between April 1st, 2016 and March 31st, 2017.

The new Budget, which was announced in 2019, has introduced an all-new deduction scheme which will help buyers avail benefits up to Rs 1.5 lakhs. This benefit makes use of Section 80EEA, and the eligibility criteria state that the property’s stamp value must be less than Rs 45 lakhs. The time frame for the deduction is between 1st April 2019 and 31st March 2020. Also, the buyer must not have any other property in his or her name when applying for this deduction.

Joint Home Loan Deduction

If the home loan is taken as joint custody, then each holder is eligible to claim a deduction up to a cap of Rs 2 lakhs each. For principal repayment, the maximum amount which can be claimed is Rs 1.5 lakhs. It is essential that all loan holders who apply for this deduction must also be a co-owner of the house.

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A lawyer with 14 years' experience, Vikram has worked with several well-known corporate law firms before joining Vakilsearch.