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A home loan is one of the best financial sources to fund your dream home purchase. When you take a home loan, you gain the property’s possession without paying its price upfront and get a chance to build credit history with regular payments. Besides these benefits, you can also avail certain tax benefits on home loans and EMIs. The Indian government announced several tax benefits that are still applicable in the current financial year.
A home loan borrower can avail of several tax benefits and claim exemptions and deductions under 80C, 80D, and other sections. Some regimes also offer reduced tax rates without any deductions and exemptions.
Let’s look at a few tax benefits that a home loan borrower can avail of and know how to claim them.
A taxpayer can avail a home loan tax benefit under any of the following sections:
Section 24: The borrower gets tax benefit on the interest paid towards the loan under this section. The maximum deduction allowed is ₹ 2 lakhs on an accrual basis. You may claim it annually even if you make no payments during that year. When you take the best home loan, if the home construction does not complete within three years of that financial year’s end, you may only get a claim of ₹ 30,000.
If you take a loan for repair, renewal, or reconstruction of a house, you do not get any tax benefits on the interest amount. However, if you pay the interest before the house construction completes, you get a deduction for the aggregate amount in five equal installments for the next five financial years.
Section 80C: You can get tax benefits on the home loan principal amount under section 80C of the Income Tax Act. The maximum deduction allowed is ₹ 1,50,000, irrespective of the payment year. The section also reduces registration and stamp duty charges even if you do not take a home loan. Tax benefit on principal loan amount repayment is allowed after the house construction.
Section 80EE: First-time homebuyers can avail of home loan tax benefit under section 80EE on the interest paid. The loan amount should not exceed ₹ 25 lakh, and the property value should not be more than ₹ 50 lakh. The maximum deduction allowed is ₹ 50,000.
Section 80EEA: Under this act, an individual can claim a tax benefit of up to ₹ 1.5 lakh within a year on the interest paid on the home loan. Earlier, borrowers were allowed to claim the benefit until 31st March 2021. However, the finance minister submitted the proposal in the Union Budget 2021 to extend until the next financial year. The tax benefits may vary, depending on whether you are the sole owner or a co-owner and if you live in the house or rent it out.
- You can claim home loan tax benefits only if you are the property’s owner.
- In the case of a co-owner, the benefit limit is applicable to each participant.
- A co-owner can avail a tax benefit only if they are a co-borrower.
- Each co-owner gets the tax benefit share proportionate to their home loan share. Therefore, it is vital to establish each co-borrowers’ stakes carefully.
- You will need to provide a certificate showing the bifurcation of the principal loan amount and interest paid in EMIs. You may get this certificate from your home loan provider.
You claim your tax benefits at the time of return filing. You will find a section named ‘deductions’ in your ITR form. Include the following details while filling it:
- Under section 80G, get deductions for any donations to charitable organisations.
- Deductions for section 24 are meant for first-time home buyers only.
- Under section 80TTA, get deductions on interest received on the SB account.
- Enter your contributions towards LIC premiums, EPF, PPF, and principal loan repayments. If you resell the property within five years of getting possession, the deductions you claim under section 80C for loan repayment will go back to your income.
You have to submit these documents to claim home loan tax benefit:
- Proof of construction completion or date of purchase
- Proof of municipal taxes paid during the year
- The property’s ownership details
- Loan document certificate showing bifurcation of the loan amount and the interest rate paid in EMIs
- A document proving that the loan is in the taxpayer’s name
Taking the best home loan helps you realise your dream home purchase and saves money on taxes. The Indian government encourages its people to buy their homes by offering them tax benefits. Whether you take a loan to buy a house or construct one, avail the tax benefits mentioned above to get the best of both worlds.