Housing Loan Tax Benefits to Leverage your Mortgage for Tax Savings

While owning a home is almost everyone's dream, people are also wary about the expenses involved. After all, one cannot overlook the rising property prices. But, people can always apply for a home loan or a housing loan to build/purchase the home of their dreams. It is worth investing in a space where the occupants will look forward to coming back after a hard day at work. 

To encourage people to invest in residential real estate, the Government of India offers several housing loan tax benefits. People who wish to apply for a home loan should be aware of all these benefits. 

A quick look at the housing loan tax benefits 

The summary of the tax benefits on a home loan is given below: 

• Section 24 of the Income Tax Act (ITA) allows for a maximum deductible amount of Rs.2 lakh per annum on one’s home loan interest payments.

• Section 80C of ITA allows for a maximum deduction of Rs.1.5 lakh per annum on home loan principal payments. 

• Under Section 80EE, the maximum deductible amount is Rs.50,000. 

Details of housing loan tax benefits 

Here is a detailed overview of all the home loan tax benefits.

• Interest deduction on principal repayment 

A home loan borrower has to repay his/her loan via Equated Monthly Instalments (EMIs). The two important components of EMI are the principal and interest components. Under Section 80C of ITA, a taxpayer can claim deductions on the principal component of his/her home loan EMI payments. If borrowers have a second residential property they own, they can still claim tax deductions under Section 80C. 

Rs.1.5 lakh is the maximum amount that a person can claim as a tax deduction for the principal component of EMIs for both of these house purchases with home loans. People will be eligible for tax benefits even if they rent out their second home. Furthermore, they can claim the registration and stamp duty charges paid for a property purchase as tax deductions. 

• Deduction on interest payment

Under Section 24 of the IT Act, homeowners can avail home loan tax benefits up to Rs.2 lakh for the interest component of EMI payments. Even if the person has a second home, he/she can claim this tax benefit. However, the amount cannot exceed Rs.2 lakh in a particular financial year. 

If a person faces loss under ‘Income from Housing Property’, the maximum amount of tax deduction they can claim is limited to Rs.2 lakh. However, the person can carry forward his/her losses for eight consecutive years to adjust their ‘Income from House Property’. 

• Additional deduction under Section 80EE

If an individual had availed a home loan during the financial year of 2016 – 2017, they were eligible for tax deduction under this section. The maximum amount that qualifies for tax deduction for the interest component of a home loan EMI is Rs.2 lakh. 

If homeowners satisfy the following parameters, they can avail an additional tax deduction of Rs.50,000/financial year till their loan is fully repaid: 

1. The loan amount must have been sanctioned between 1st April 2016 and 31st March 2017.

2. The total loan amount must not be more than Rs.35 lakh. Moreover, the property against which the person has availed the loan must have been worth Rs.50 lakh or less. 

3. Housing loan tax benefits under this category are applicable only for first-time home buyers and residential properties. 

• Additional deduction under Section 80EEA 

People can avail an additional tax deduction of Rs.1.5 lakh on the interest component of home loan EMI upon fulfilling the following eligibility criteria. 

1. The maximum value for stamp duty should be Rs.45 lakh.

2. The time to take the loan was originally between April 1, 2019, and March 31, 2020. It was later extended in Budget 2021 to another year.

3. The applicant must be a first-time home buyer on the day they receive approval for their home loan. 

4. To claim a deduction under Section 80EEA, a person must have their home loan sanctioned by 31st March 2022. 

• Deductions for joint home loans

To claim tax deductions for joint home loans, the borrowers must also be co-owners of the property. According to Section 24 (B) of the ITA, each borrower can claim a tax deduction of up to Rs.2 lakh for the interest component of home loan EMI. Under Section 80C of ITA, each borrower can claim a tax deduction of up to Rs.1.5 lakh for repayment of the principal amount. 

Tips to use home loan tax benefits 

Detailed below are some of the important tips that borrowers can use: 

• Use the tax rebate on home loan

Under Section 80C of ITA, borrowers can claim tax benefits for the principal amount up to Rs.1.5 lakh. Section 24 (b) and Section 80EEA enable borrowers to claim tax deductions amounting to up to Rs.3.5 lakh. It is a good idea to use all these provisions to avail the maximum tax rebate. 

• Don’t forget to collect the home loan interest certificate 

Often, many borrowers forget to collect the home loan interest certificates from their lenders and it is a mistake. Borrowers can send this certificate to their employer for adjustment of TDS. If someone is unable to submit their home loan interest certificate to their employer, they must submit the same while filing their Income Tax Returns (ITR). 

• Add co-applicants 

Potential borrowers should consider adding co-applicants when choosing to apply for a home loan as it will improve the chances of loan sanction. But, the co-applicant should be the co-owner of the property as well to claim tax benefits.

Ways to reduce home loan interest rates with EMI calculators 

People can use a home loan EMI calculator and employ the following strategies to reduce their loan interest rates: 

• Home loans with a short tenure provide less cost for the borrower. People can use an online calculator to determine a tenure they are comfortable with. 

• People can use the calculator to compare offers from various lenders. It will help them choose the lender offering the most favourable terms. 

• People can increase the EMI amount to reduce the interest component over the loan repayment tenure. 

Many financial institutions offer pre-approved offers on home loans and loans against property for their valued customers. These offers reduce the time for processing and other formalities. To check their pre-approved offers, people can visit the lender's official website and enter their names and contact details. 

To sum up, there are many housing loan tax benefits that potential borrowers need to be aware of. Under Sections 24, 80C and 80EE of ITA, people can avail tax deductions. But, they must fulfil the eligibility criteria. Moreover, people can use an online home loan EMI calculator to choose a tenure and principal amount they are comfortable with. It reduces the chances of default.