Maximising Tax Savings: Housing Loan Interest Deduction Essentials

Buying a house is one of the most significant investments a person can make. It often requires a substantial housing loan, with interest payments over many years. Fortunately, the Indian tax system offers several benefits to help offset the cost of these loans. 

Understanding how to claim housing loan interest deductions can save a considerable amount of money. This article explores these tax benefits and provides tips to maximise savings.

Home loan tax benefit

Home loan tax benefits in India are primarily designed to promote homeownership. The following are some key deductions related to housing loan interest.

1. Section 24(b) - Deduction for interest on home loan

Under Section 24(b), the interest paid on a home loan for a self-occupied or let-out property can be claimed as a deduction. The maximum limit for self-occupied properties is Rs.2,00,000, while there is no upper limit for let-out properties. This section allows taxpayers to offset their taxable income by the interest amount paid during the financial year.

2. Section 80EE - additional deduction FOR first-time homebuyers

First-time homebuyers can avail up to Rs.50,000 under the Section 80EE. This deduction is applicable for properties purchased between April 1, 2016, and March 31, 2017. It was applicable on a loan value of less than Rs.35 lakh and a property value not exceeding Rs.50 lakh.

3. Section 80EEA - additional deduction 

Section 80EEA offers an additional deduction of up to Rs.1,50,000 for loans sanctioned between April 1, 2019, and March 31, 2022. This deduction is applicable for affordable housing, with the property value not exceeding Rs.45 lakh.

Here is a table summarising home loan tax benefits in India for a better understanding: 

Section	Description	Maximum deduction
Section 24(b)	Interest on home loan (self-occupied)	Rs.2,00,000
Section 24(b)	Interest on home loan (let-out)	No limit
Section 80EE	Additional deduction (first-time buyers)	Rs.50,000
Section 80EEA	Additional deduction	Rs.1,50,000

Tips to deduct interest on home loan by availing tax benefits

To maximise tax savings through housing loan interest deductions, borrowers should consider the following tips:

• Opt for joint ownership: If a person opts for a home loan jointly with a family member or a spouse, each co-owner can claim deductions separately under Sections 24(b) and 80C. This strategy can effectively double the tax benefits.

• Choose an affordable housing loan: Opting for loans that qualify for Section 80EEA benefits can increase the total interest deduction amount.

• Maintain proper documentation: Keep all loan-related documents, such as loan sanction letters, interest certificates, and property agreements, readily available. Proper documentation ensures the smooth processing of deductions.

• Claim deductions for the pre-construction period: Interest that a person pays during the pre-construction period can be claimed from the year of completion in five equal instalments.

• Utilise deductions for let-out property: There is no limit to the interest deduction for let-out properties. Consider renting out property for additional income and claiming deductions.

Moreover, borrowers should also know that some renowned lenders and financial institutions offer pre-approved offers on products like home loans and loans against property. The lenders provide these kinds of offers to their existing customers to speed up the loan approval process. Therefore, the customers can log in to the lender’s website and enter some basic details to know if they are eligible for any offers.  

By following these tips taxpayers can optimise their tax savings while managing their home loans. However, first, they will have to understand the different sections of the Income Tax Act that pertain to housing loan interest and how to claim housing loan interest deductions.