Unlocking Tax Benefits: Income Tax Benefit on Home Loans

Owning a home is a significant achievement, but it can also be a financial burden. To encourage homeownership, the Indian government offers attractive income tax benefits on Home Loans. These deductions can significantly reduce the taxable income of a borrower, leading to lower tax outgo.

What are the tax benefits on Home Loans? 

Here are some of the most important income tax benefits on Home Loans:

1. Home Loan tax benefits under Section 80C

Section 80C of the Income Tax Act allows for up to Rs.1.5 lakh deduction on the principal component repaid during the year. This deduction applies to the entire principal amount paid, including any stamp duty and registration charges incurred during the purchase. 

2. Home Loan tax benefits under Section 24(b)

Another significant tax benefit comes under Section 24(b) of the Income Tax Act. This section offers a deduction on the interest paid on the Home Loan. The maximum deduction limit for this section is Rs.2 lakh in a financial year. 

3. Home Loan tax benefits under Section 80EE

Section 80EE provides an additional tax benefit for first-time homebuyers. This section allows for an extra deduction of up to Rs.1.5 lakh on the interest paid on the Home Loan. To be eligible for this benefit, the Home Loan must be sanctioned by a financial institution between specific dates as notified by the government. 

4. Extra deduction under Section 80EEA

The government offers a further tax benefit under Section 80EEA. This section helps homebuyers avail an additional deduction of up to Rs.1.5 lakh on the interest paid on Home Loans. To be eligible for this benefit, the loan amount must not be more than Rs.45 lakh, and the property value must be less than Rs.45 lakh in certain metropolitan cities and Rs.40 lakh in non-metropolitan cities.

5. Deduction for a joint Home Loan

The income tax benefits on Home Loans become even more attractive when applying for a joint loan. In a joint Home Loan scenario, each borrower can claim the deduction benefits separately. This means that both individuals can claim a deduction of up to Rs.2 lakh for Home Loan interest under Section 24(b) and Rs.1.5 lakh for principal repayment under Section 80C, subject to the overall limits. 

Impact of new tax regime on Home Loan tax benefits

When thinking about how to claim tax benefits on Home Loans, note that under the old tax regime, deductions remain unchanged, allowing for unlimited deductions. However, in the new regime, benefits are limited.

• Deductions under sections 80C, 80EE, and 80EEA for the principal component of the Home Loan, stamp duty, and registration charges are not available.

• Deductions under section 24(b) for the interest component of the Home Loan are not available for self-occupied property.

• Deductions under section 24(b) are available for let-out property. If the net income from the let-out property results in a loss, this loss can be set off against profit from another house property, but it cannot be set off against other heads of income such as salary or other sources.

Many financial institutions extend pre-approved offers for their products, such as Home Loans and loans against property, to existing borrowers. These pre-approved offers streamline the loan application process for those borrowers. Individuals can verify their eligibility for these offers by providing their details on the lender's website.

Income tax benefits on Home Loans can provide substantial financial relief for homeowners. Understanding these benefits and choosing the most suitable tax regime can significantly reduce a borrower’s tax burden and make owning a home more affordable. So, it is advisable to consult a tax advisor to determine the best course of action based on the financial situation.