A home purchase loan not only helps you buy your dream home but also offers significant tax benefits under the Income Tax Act, 1961. These benefits can help reduce your tax liability and make homeownership more affordable. Let’s explore the different tax deductions available on home loans.
1. Tax Deduction on Principal Repayment (Section 80C)
- You can claim a deduction of up to ₹1.5 lakh per year on the principal amount repaid.
- This benefit is available only for self-occupied and rented properties.
- The house must not be sold within 5 years of purchase, or the deduction will be reversed.
2. Tax Deduction on Interest Paid (Section 24(b))
- You can claim a deduction of up to ₹2 lakh per year on interest paid for a self-occupied property.
- For a rented property, there is no upper limit, meaning the full interest amount can be deducted.
- If the property is under construction, interest paid can be claimed in five equal installments after completion.
3. Additional Deduction for First-Time Home Buyers (Section 80EE & 80EEA)
- Section 80EE: First-time home buyers can claim an additional deduction of ₹50,000 on interest, provided the loan amount is ₹35 lakh or less, and the property value is ₹50 lakh or less.
- Section 80EEA: An extra deduction of ₹1.5 lakh is available for affordable housing buyers, provided the property value does not exceed ₹45 lakh.
4. Tax Benefits for Joint Home Loan Holders
- If you take a joint home loan with a co-borrower (e.g., spouse or parent), both individuals can claim separate tax benefits under Sections 80C and 24(b).
- This means a couple can claim a total deduction of ₹3 lakh on principal repayment and ₹4 lakh on interest repayment (₹1.5 lakh + ₹1.5 lakh under 80C and ₹2 lakh + ₹2 lakh under 24(b)).
5. Tax Benefits for Under-Construction Properties
- You cannot claim Section 80C benefits until the property is completed.
- Interest paid during construction can be claimed in five equal installments after possession under Section 24(b).
How to Claim Home Loan Tax Benefits?
- Get a home loan interest certificate from your bank or lender.
- Declare home loan details while filing Income Tax Returns (ITR).
- Submit the loan certificate to your employer (if salaried) for TDS adjustments.