F-14/15, Orbit Mall, Civil Lines, Jaipur-302006
Register & Login
Purchasing a home is a significant milestone, but it also comes with financial responsibilities. One of the perks of taking a home loan is the potential tax benefits available to buyers. Understanding these tax incentives can make homeownership even more appealing. This blog will explore the various tax benefits associated with home loans, particularly for the financial year 2023-24 (Assessment Year 2024-25).
Key Tax Benefits Under the Income Tax Act
Home loan tax benefits are primarily covered under three sections of the Income Tax Act, 1961:
| Section | Maximum Deductible Amount |
|---|---|
| Section 24 | ₹2,00,000 per annum |
| Section 80C | ₹1,50,000 per annum |
| Section 80EE | ₹50,000 |
Breakdown of Tax Benefits
To better understand the tax benefits on home loans, let’s divide them into two main components:
- Principal Repayment
- Interest Payment
1. Tax Deduction on Principal Repayment (Section 80C)
You can claim a deduction for the principal amount repaid during the financial year under Section 80C, with a maximum limit of ₹1,50,000. Here are some important conditions to note:
- The deduction can only be claimed after the property is constructed. For example, if you receive a completion certificate in March 2023, you can claim the principal repayment for the financial year 2022-23.
- Only loans taken for purchasing or constructing a house qualify for this deduction. Loans for renovations or repairs do not qualify.
- Deductions are applicable only if the loan is obtained from recognized financial institutions, not from individuals.
- You cannot claim the principal repayment if it was paid in a different financial year than the one you are filing for.
- If you sell the property before five years of possession, the total deduction claimed will be added back to your income.
2. Tax Deduction on Interest Payment (Section 24)
Interest paid on a home loan can also be claimed as a deduction under Section 24. This applies to both pre-construction and post-construction periods.
A. Pre-Construction Interest:
This period runs from the loan disbursement date to March 31 of the year before construction completion. The total interest can be claimed in five equal installments starting from the year construction is completed.
B. Post-Construction Interest:
Once construction is complete, the interest paid on the home loan can be claimed fully each year.
Who Can Claim Tax Benefits on Home Loans?
To avail of these tax benefits, you must meet specific criteria:
- You must be both the owner of the property and the borrower of the loan. If the loan is in your spouse's name and you are paying the EMI, you will not qualify for the benefits.
- Only individuals or Hindu Undivided Families (HUFs) can claim these deductions; companies and partnerships are excluded.
Case Study: Tax Savings Example
Let's consider a case where you take a home loan of ₹50,000 at 15% interest on June 1, 2015, and complete construction by January 1, 2021.
Pre-Construction Interest Calculation:
Interest from June 1, 2015, to March 31, 2020: ₹36,250
Deduction in five installments: ₹7,250 per annum
Post-Construction Interest Calculation:
Post-construction interest per year: ₹7,500
Yearly Home Loan Interest Deduction:
| Financial Year | Pre-Construction Interest | Post-Construction Interest | Total Deduction |
|---|---|---|---|
| 2020-21 | ₹7,250 | ₹7,500 | ₹14,750 |
| 2021-22 | ₹7,250 | ₹7,500 | ₹14,750 |
| 2022-23 | ₹7,250 | ₹7,500 | ₹14,750 |
| 2023-24 | ₹7,250 | ₹7,500 | ₹14,750 |
| 2024-25 | ₹7,250 | ₹7,500 | ₹14,750 |
| 2025-26 | - | ₹7,500 | ₹7,500 |
Limits on Tax Deductions
- Self-Occupied Property: Up to ₹2,00,000 for interest; ₹1,50,000 for principal.
- Rented Property: No limit for interest deduction, with the pre-construction interest also claimed.
Additional Deductions for First-Time Home Buyers (Section 80EE)
First-time home buyers can enjoy an additional deduction of ₹50,000 for interest paid on home loans, subject to the following conditions:
- The loan amount should not exceed ₹35 lakhs.
- The property value should not exceed ₹50 lakhs.
- The loan must be sanctioned between April 1, 2016, and March 31, 2017.
Smart Tax-Saving Tips
- Claim Stamp Duty and Registration Charges: These can be claimed under Section 80C up to ₹1,50,000.
- Deduct Processing Fees: These fees are tax-deductible and can be claimed as an interest expense.
- Consider Joint Loans: If both partners are earning, applying for a loan in joint names can maximize tax benefits.
How to Claim Tax Benefits
To claim these benefits:
- Calculate your eligible deductions.
- Submit your home loan interest certificate and EMI statement to your employer with Form 12BB.
- If you miss this step, you can still claim the benefits when filing your income tax return.
Keeping accurate records of your deductions is essential in case the Income Tax Department requires clarification.
