Taking a home loan can help you save tax as per the provisions of the Income Tax Act, 1961. Even more so after the announcements made during the latest financial budget.
Union Finance Minister Nirmala Sitharaman in the budget speech proposed to extend the deadline for availing additional deductions on interest payment on home loans to 31 March 2022. This comes after the government had in the previous budget extended the deadline to 31 March 2021.
While a housing loan can help you get a house for yourself, it can also turn out to an expensive affair. But the various tax benefits that come with such a loan help you save money every year. Take a look at how you can make the most of these benefits.
Tax Benefits on Home Loan (FY 2021-22)
The following table gives you the tax benefits under the corresponding sections of the Income Tax Act, 1961.
|Income Tax Act||Maximum Deductible Amount|
|Section 24||Rs.2 lakh per annum|
|Section 80C||Rs.1.5 lakh per annum|
New Updates (Union Buget 2021-2022)
Here are updates from the latest budget presented by Union Finance Minister Nirmala Sitharaman on 1 February 2021:
- Eligibility period for claim of additional deduction for interest of Rs.1.5 lakh paid for loan taken for purchase of an affordable house extended till 31 March 2022.
- Eligibility period for claiming tax holiday for affordable housing project extended by another year. The new deadline is 31 March 2022.
- New tax exemption proposed for the notified Affordable Rental Housing Projects to promote supply of Affordable Rental Housing for the migrant workers.
Home Loan Tax Benefits under Section 80C – Principal Deductions
Section 80C deals with the principal amount deductions:
- For both self-occupied and let-out properties, you can claim up to a maximum of Rs.1.5 lakh every year from taxable income on principal repayment.
- Stamp duty and registration charges may be included in it. However, it can be claimed only once.
- To claim it, you need to complete the construction of the property first.
- You should not sell your house within 5 years of possession to claim this deduction.
- If you sell your house within 5 years after possession, any deduction claimed will be reversed in the year in which you sell it. This amount will also be added to your income for the year of sale.
Tax Benefits under Section 80EE
- Proposal has been made to increase income tax benefits by Rs.1.5 lakh on interest payments
- You can avail deductions of up to Rs.3.5 lakh
- The benefit can be availed over and above the existing exemption of Rs.2 lakh under Section 24(b)
- The value of property must be less than Rs.45 lakh.
Deduction for Joint Home Loan
If the housing loan is availed by two or more persons, each of them is eligible to claim a deduction on the interest paid up to Rs.2 lakh each. Tax can be deducted on the principal paid as well for an amount up to Rs.1.5 lakhs each. However, all the applicants should also be co-owners of the property in order to claim this deduction. Therefore, a joint home loan can give you greater tax benefits.
Home Loan Tax Benefits of Owning a Second Property
As per the current provisions, tax benefits are applicable on payable interests. You can claim the entire paid interest amount.
It has been proposed that the second self-occupied home can also be claimed as a self-occupied one to help borrowers save more on taxes.
How to Claim Tax Benefits on Home Loans?
Claiming tax benefits on home loan is a simple process. Below are the steps to claim your tax deduction.
Step 1: Calculate the tax deduction to be claimed.
Step 2: Ensure that the house is in your name or you are the co-borrower of the loan.
Step 3: Submit your home loan interest certificate to your employer to adjust the tax deductible at source.
Step 4: In case you don’t perform the above step, you would have to file the tax return by yourself.
Step 5: In case you are self-employed, you are not required to submit these documents anywhere. Just keep them handy if in case the IT department raises queries in the future.
How to Calculate Tax Benefits on Home Loan?
The easiest way to calculate your tax benefits on home loan is by using an online calculator. Simply enter your home loan details and click on calculate and a detailed tabulation will pop up. The details you will generally need are:
- Loan Amount
- Interest Rate
- Loan Start Date
- Gross Annual Income
- Existing Deduction Under 80C/D
- Can I claim tax benefits if I plan on constructing the house and selling it in a few years?If you sell the property within 5 years of possession, any tax deductions already claimed will be reversed. However, the tax exemptions on interest paid will remain unchanged.
- Who is eligible to claim tax deductions on home loans?The owner of the property can claim tax benefits. If the spouse is a co-borrower, they can also file for tax deductions. In the case of a joint loan, both parties can claim for their share of the loan they pay.
- The property I purchased with a home loan is still under construction. Can I claim tax benefits?You cannot claim tax deductions till the construction is completed. Once it is completed, you can claim an aggregate of interest paid for the period prior to the year of taking possession. This can be claimed in five equal instalments from the year in which construction is completed.
- Can I claim tax benefits on loans from friends?You can claim for tax deduction under Section 24(b) only for the interest paid. The friend will have to provide you with a certificate and will be liable to pay tax on the interest earned from the loan.
- Can I claim tax benefit on two home loans?Generally, tax benefits can be availed only on the house claimed as self-occupied. In case if you own two houses, only one of them can be claimed as self-occupied property. The other house will be considered as a let-out property and will be taxed as per the tax slab applicable. The notional rent on your second house will be added to your income.
- Can my spouse claim income tax deduction if we buy a house jointly?Yes, you can claim separate deductions in your IT returns if your spouse is employed and has a different source of income. You can both claim deduction under Section 80C up to Rs.1.50 lakh from your total income. If the house is jointly owned, each co-owner can claim deductions up to Rs.2 lakh on account of the interest on borrowed money.
- Is the Home Loan principal part of Section 80C?Yes, home loan principal is part of Section 80C of the Income Tax Act. Under this section, an individual is entitled to tax deductions on the amount paid as repayment of the principal component on the housing loan. An amount up to Rs.1.50 lakh can be claimed as tax deductions under Section 80C. However, the tax benefit on the repayment of the principal amount can be claimed only after the house is constructed. The section does not allow deductions for the repayment of the principal part during the years the house was being constructed.
- Are there any other tax deductions I can claim with respect to interest payment on the home other than the interest under Section 24(b)?You can also claim tax deductions in respect of the interest on the housing loan under Section 80EE of the Income Tax Act. Under this section, an individual is entitled to claim tax deductions up to a maximum amount of Rs.1.5 lakh during a financial year.
- Can I claim tax benefit on the principal repaid on a housing loan?Yes, you can avail tax benefits on the principal amount repaid on the home loan from total income under Section 80C.
- What is maximum amount I can avail for deduction of interest paid on my housing loan?
Under Section 24 of the Income Tax Act, an individual can claim tax deduction of the interest payment on the housing loan up to a maximum amount of Rs.2,00,000.