What are the tax benefits under Home Loans?

What are the tax benefits under Home Loans?

What are the tax benefits under Home Loans

You apply for a Home Loan for construction or purchasing the dream house. While it can get costly, several provisions can help you save money as you build or buy your dream home. To understand the various tax benefits available on Housing Loans, you should know that every Loan has two components:

  • Principal repayment
  • Interest payment

The Income Tax law allows you to claim deduction on both components. Let us discuss all the tax-saving ways on a Housing Loan.

Deduction of principal payment

There is a tax-saving possibility under the interest portion of the equated monthly instalments paid for the year. Under Section 24 of the IT Act, you can claim a rebate of up to Rs. 2 lakh. The maximum deduction claimable for a self-occupied house property is Rs. 2 lakh. However, for a let-out property, there is no upper limit. Regardless, you can claim only Rs. 2 lakh under the head of 'House Property' within a year of the construction completion.

If you bought an under-construction property and have not moved in yet but paying the EMIs, then you cannot claim the rebate. The claim only starts when the construction or you buy a fully completed property. However, there is a concept of pre-construction interest. You can claim five equal instalments when you acquire the property or the completes.

This is over the deduction you are otherwise eligible to claim your house property income. Your claim is capped at Rs. 2 lakh in this case only.

Deduction on principal repayment

The EMI principal you pay for the year is also eligible for deduction under Section 80C. In this case, the upper limit of the deduction is Rs. 1.5 lakh.  However, to claim this deduction, you should not sell the property within five years of your possession. Otherwise, the dedication you claim in the previous years will add to your income.

Other deductions

Some other tax benefits under the Home Loan are:

  • Tax rebates on stamp duty and registration charges of up to Rs. 1.5 lakh can be claimed under the Section 80C
  • An additional tax benefit of up to Rs. 50,000 can be claimed under Section 80EE. However, to claim this, you should meet the following conditions:
    • The Loanamount should be Rs. 35 lakh or less, and the property's value should not exceed Rs. 50 lakh.
    • The Loan should be applied between April 2016 to March 2017.
    • You should be a first-time house owner.
  • You can claim another additional deduction under Section 80EEA, where the limit is Rs. 1.5 lakh. To claim the rebate, the conditions are:
    • The value of the property should be more than Rs. 45 lakh.
    • You should have taken the Loan between April 2019 to March 2022.
    • You should be a first-time home buyer.
    • You should not be eligible to claim a deduction under Section 80EE.

Disclaimer: ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The securities quoted are exemplary and are not recommendatory. The contents herein mentioned are solely for informational and educational purpose.

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