Purchasing property through a home loan is a significant financial commitment, but the Indian Income Tax Act provides several benefits that can ease the financial burden. These benefits encourage home ownership and make it more affordable by allowing borrowers to save on taxes. Here’s a detailed look at the tax benefits available under various sections of the Income Tax Act.
Section 80C: Principal Repayment
Under Section 80C, the repayment of the principal amount of a home loan qualifies for a deduction. The maximum deduction limit is ₹1.5 lakh per financial year. This includes payments towards the principal repayment of the loan, stamp duty, and registration fees. However, to claim this benefit, the property should not be sold within five years from the end of the financial year in which possession was obtained; otherwise, the deduction claimed will be added back to the income in the year of sale.
Section 24(b): Interest on Home Loan
Section 24(b) provides for the deduction of interest paid on home loans. The maximum deduction limit is ₹2 lakh per annum for a self-occupied property. If the property is rented out, there is no upper limit for claiming the interest deduction, although the overall loss that can be set off against other income heads is capped at ₹2 lakh. To avail of the full benefit of ₹2 lakh, the loan must be for the purchase or construction of the house, and the acquisition or construction must be completed within five years from the end of the financial year in which the loan was taken.
Section 80EE: Additional Deduction for First-Time Home Buyers
Section 80EE offers an additional deduction of up to ₹50,000 per annum on the interest paid on home loans. This benefit is specifically for first-time homebuyers, subject to the condition that the property’s value does not exceed ₹50 lakh and the loan amount is ₹35 lakh or less. Moreover, the loan should have been sanctioned between April 1, 2016, and March 31, 2017.
Section 80EEA: Affordable Housing
Introduced in the Union Budget 2019, Section 80EEA provides an additional deduction of up to ₹1.5 lakh on the interest paid on home loans for affordable housing. This exceeds the deductions available under Section 24(b) and Section 80C. To qualify, the stamp duty value of the property should not exceed ₹45 lakh, and the loan should have been sanctioned between April 1, 2019, and March 31, 2022.
Benefits of Joint Home Loans
If a home loan is taken jointly, each co-borrower can claim the deductions individually under Sections 80C and 24(b), provided they are also co-owners of the property. This can significantly enhance a family’s total tax benefits.
Conclusion
The tax benefits on home loans under the Income Tax Act make purchasing property more affordable and provide substantial relief to homebuyers. By effectively utilizing these provisions, taxpayers can significantly reduce their tax liabilities and make home ownership a financially viable goal.