Owning a dream home is a significant achievement, especially with property prices soaring. Buying a house with cash is difficult for many Indians, and most rely on home loans to finance their dream home. While taking a home loan increases the total repayment amount over time, it also provides substantial tax benefits. Understanding how to save tax on a home loan can help homeowners reduce their overall tax liability.

Let’s explore the tax benefits of home loans and ways to maximise them, ultimately helping taxpayers minimise their tax burden.

Tax Benefits on Home Loans

Banks and NBFCs allow borrowers to repay their home loans through EMIs, which include both principal and interest components. Taxpayers can claim deductions on both, as per the Income Tax Act:

• Principal Amount: Up to Rs 1,50,000 on principal repayment.
• Interest Amount: Up to Rs 2,00,000 for self-occupied properties, with no upper limit for let-out properties.

Section 80C: Tax Deduction on Principal Repayment

The Income Tax Act allows borrowers to claim a tax deduction on the principal amount repaid on a home loan each year. Under Section 80C, the principal repayment is eligible for deduction, with a maximum limit of Rs 1,50,000 per year.

To avail of this benefit, the property for which the deduction is claimed must not be sold within five years of possession. If it is sold before this period, the claimed deduction will be added back to the taxpayer’s income.

Additionally, under the same section, taxpayers can claim deductions for stamp duty and registration charges incurred while purchasing the property. However, the overall deduction limit remains Rs 1,50,000.

Section 24: Tax Deduction on Interest Payment

To claim a deduction under Section 24, the loan must be taken for the purchase or construction of a house property. The interest paid on a home loan for a self-occupied property can be claimed as a deduction under this section, up to a maximum of Rs 2,00,000 per year.

For a let-out property, there is no upper limit specified in the Act, meaning taxpayers can claim the entire interest paid on the home loan as a deduction.

If the loan is taken for house construction, the Act mandates that construction must be completed within five years from the end of the financial year in which the loan was taken. If not, the deduction on interest paid will be limited to Rs 30,000 per year.

Additional Deductions to Reduce Tax Liability

Apart from Sections 80C and 24, taxpayers can claim additional deductions under Sections 80EEA and 80EE.

Section 80EEA: Allows an additional deduction of Rs 1,50,000 per year for interest paid on a low-cost housing loan taken between April 1, 2019, and March 31, 2022.

Section 80EE: Provides an additional deduction of up to Rs 50,000 per year for interest paid on a home loan, which can be claimed until the loan is fully repaid. The loan must have been sanctioned between April 1, 2016, and March 31, 2017.

To be eligible, the taxpayer should not own more than one house property at the time of loan sanction, meaning this benefit is exclusively for first-time homebuyers.

Joint Home Loan: A Smarter Way to Save Tax

A joint home loan is an efficient way to maximise tax savings and reduce tax liability. By opting for a joint loan, both loan holders can claim deductions on:

• Principal repayment under Section 80C, up to Rs 1,50,000 per year.
• Interest payment under Section 24(b), up to Rs 2,00,000 per year.

To qualify for these benefits, both individuals must be co-owners of the property and co-borrowers of the home loan.

Wrapping Up

A home loan not only helps achieve the dream of homeownership but also offers significant tax benefits. By understanding the deductions available under the Income Tax Act, taxpayers can reduce their tax burden and maximise savings. Additionally, opting for a joint home loan can further enhance these benefits. Making informed financial decisions and taking advantage of these tax-saving opportunities can help reduce overall tax liability effectively.

*This article is for informational purposes only. This is not investment advice.
*Disclaimer: Teji Mandi Disclaimer