Home Loan Tax Benefits - How to save Tax through Home Loan?

A Home Loan is a valuable financial tool for achieving the dream of homeownership in India. The Indian government supports this aspiration by providing various tax benefits under the Income Tax Act, 1961. This guide will help you understand these tax advantages, how to leverage them effectively, and maximise your benefits from home loan repayments.

A Home Loan consists of two main components:

1. Principal Amount: The original sum borrowed from the lender.

2. Interest Paid: The cost of borrowing, calculated as a percentage of the principal.

Tax benefits are available on both components under different sections of the Income Tax Act.

Section 24(b):

• Self-Occupied Property: You can claim a tax deduction of up to Rs 2 lakh on the interest paid for a self-occupied property.

• Rented Property: Similar to self-occupied properties, you can claim up to Rs 2 lakh on rented properties. Note that this section does not cover commercial properties.

• Accrual Basis: The deduction can be claimed on an accrual basis. You are eligible to claim deductions for interest payments made in a previous year, even if not paid in the current year.

• Loss Carry Forward: For commercial properties, any excess interest can be carried forward for up to 8 years. However, for self-occupied properties, the 

Section 80C:

• Principal Repayment: You can claim a deduction of up to Rs 1.5 lakh on the repayment of the principal amount.

• Additional Charges: This includes costs for registration and stamp duty on the property.

• Combining with Other Deductions: This deduction is available along with other tax-saving instruments like Fixed Deposits, Provident Fund, and Insurance premiums.

• Restriction: You must retain the property for at least five years. If sold within this period, the previously claimed deductions will be added to your taxable income in the year of sale.

Joint Home Loan Benefits:

• Increased Eligibility: A joint Home Loan can enhance your loan eligibility.

• Enhanced Tax Benefits: Both partners can claim a total deduction of up to Rs 3 lakh on the principal repayment under Section 80C and up to Rs 4 lakh on interest payments under Section 24(b).

Section 80EE:

• Additional Deduction: First-time home buyers can claim an additional deduction of up to Rs 50,000 on the interest amount.

• Eligibility Criteria:

  • Property value must be Rs 50 lakh or less.

  • Loan amount should be Rs 35 lakh or less.

  • No other property should be owned on the date of loan sanction.

  • The loan must be sanctioned by a recognized financial institution or housing finance company.

• Time Limit: This deduction is available only for loans sanctioned up to March 31, 2017.

Securing a Home Loan is more than just a financial commitment; it offers significant benefits in terms of tax savings. By understanding and utilising the various tax deductions available under Sections 24(b) and 80C, and taking advantage of additional benefits for first-time buyers, you can effectively reduce your tax liability. Consider opting for joint Home Loans to maximise deductions and ensure you meet all criteria to enjoy the full range of tax benefits. Efficient management of your Home Loan not only helps in achieving your homeownership goals but also provides financial advantages through tax savings.

Under Section 80C of the Income Tax Act, 1961 you can save tax by investing in Tax saving Fixed Deposit. Calculate using FD calculator.

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* The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice from before you take any/refrain from any action. Tax benefits are subject to changes in tax laws. Please contact your tax consultant for an exact calculation of your tax liabilities.