While taking a home loan can be burdensome on your pockets, it also opens up various tax-saving opportunities. Here are the deductions available on home loans to maximize your tax benefits
Only the owners of the property can claim tax deductions on home loans. If the home loan is taken jointly with a spouse, each borrower can claim a deduction on home loan interest in the ratio of their ownership.
While taking a home loan can be burdensome on your pockets, it also opens up various tax-saving opportunities. Here are the deductions available on home loans to maximize your tax benefits
Under this section, an individual can claim a tax deduction on a home loan taken for the purchase or construction of a house. In case of purchase, a total deduction of Rs 2 lakh can be claimed on self-occupied house property.
In the case of construction, the construction must be completed within five years of the purchase to avail of a deduction of Rs 2 lakh. If the construction takes more than five years, the deduction amount is reduced to Rs.30,000.
“In case the construction exceeds the stipulated time, i.e. five years, you can claim deductions on the interest of the home loan only up to Rs 30,000 for the financial year.
However, the overall loss can be claimed under the head ‘Income from House Property’ against any other head of income up to Rs 2 lakh only. This deduction can be claimed from the year in which the construction of the house is completed,” says Manikandan S, tax expert, Cleartax.
Note: While the maximum deduction available for a self-occupied property is Rs 2 lakh, there is no upper limit on the amount of deduction for the let-out property.
Principal Repayment
“This section allows individuals to claim a deduction for the principal paid on home loan EMI. The maximum amount allowed under this section is Rs 1.5 lakh,” says Abhishek Soni, CEO, Tax2Win, an income tax portal.
Note: The house property for which deduction u/s 80C is claimed should not be sold within five years of purchase to avail of the deduction.
Stamp Duty
“In addition to claiming the deduction for principal repayment, you can also claim a deduction for stamp duty and registration charges under Section 80C, but within the total limit of Rs 1.5 lakh. However, this deduction is only applicable in the year when these expenses are paid,” says Soni.
Home buyers can avail of an additional deduction under Section 80EE, capped at a maximum of Rs 50,000. To qualify for this deduction, they must meet the following criteria:
The loan amount should be Rs 35 lakh or less, and the property's value should not exceed Rs 50 lakh.
The loan must have been sanctioned between April 1, 2016, and March 31, 2017.
At the time of loan sanction, the individual must not own any other house, i.e., he/she should be a first-time house owner.
Section 80EEA allows homebuyers to claim an additional maximum deduction of up to Rs.1.5 lakh upon fulfilling certain conditions -
The stamp duty value should not be more than Rs 45 lakh
The loan must have been provided between 1 April 2019 to 31 March 2022.
The individual must not own another house on the date of loan sanction.
The individual should not claim any deduction under section 80EE if claiming a deduction under this section.
If the loan is taken jointly by two or more people, each homeowner can avail of a deduction for home loan interest up to Rs 2 lakh each and Rs 1.5 lakh for principal repayment under section 80C. However, to claim this deduction, they should be the co-owners of the property.