Home Loan Tax Benefits

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Home Loan Tax Benefit

Tax Benefits On Principal Repaid On Interest Paid
First Home – Self Occupied Actual principal repaid subject to a maximum of ₹ 1.50 Lakh can be claimed as investment eligible for tax deduction under section 80C.
  • Actual Home loan interest paid subject to a maximum of ₹ 2 Lakh if the house’s construction is completed within 5 years from the end of the financial year in which the loan is taken.
  • If the construction of the house is not completed within five years, then ₹ 30,000 is tax-exempt.
  • Additional deduction of ₹ 1.50 Lakh for interest on Home loan availed for purchase of Affordable houses of up to ₹ 45 Lakh till March 2020. The benefit is available till 31st March 2021.
First Home – Rented/ Vacant (deemed to be let out property) Up to ₹ 1,50,000 eligible for tax deduction under Section 80 C. The deduction is available only if the property owner is staying in a different city for work.
  • Exemption on interest is capped at lower of two, a) ₹ 2,00,000 or b) actual interest paid for all properties owned by a taxpayer.
Second Home or Additional Property None
  • Exemption on interest is capped at a lower of two, a) ₹ 2,00,000 or b) actual interest paid for all properties owned by a taxpayer.
Under Construction Property None
  • The interest paid can be claimed in equal parts in five financial years post-completion or handing over property within the overall annual limit of ₹ 2 Lakh.

Current Home Loan Tax Exemption

The list of tax exemptions you can demand interest on a Home loan this year under various situations are:

  • You can claim at most ₹ 2 Lakh in case your property is self-occupied.
  • In case you have borrowed the plot, you can claim the exact amount of interest accumulated on your loan without any restriction.
  • For a joint residencial loan, the deduction is available up to the maximum limit for each co-owner.

The maximum limit of ₹ 2 Lakh lakh is applicable in the under-construction property only if the construction is complete within 5 years from the financial year in which the loan is available. 

How to Claim Home Loan Tax Benefit Under Section 80C?

The procedure to claim Home loan tax benefit under section 80C is:

  • The tax privilege can be professed only while filing the ITR.
  • When entering the details in your ITR form, make sure you have entered the right values in the different income heads as applicable to you.
  • Next, in the section of deduction under section 80C calculate the tax deduction you want to claim.
  • Since section 80C includes various deductions like LIC premium and contribution to the provident fund, you need to calculate how much of all the deductions are available under the section you can claim.

Tax Benefit under Section 80EE

  • The tax benefit available under section 80EE of the Income Tax Act is available on Home loans sanctioned between 1st April 2016 to 31st March 2017.
  • To claim this discount, the borrower should not own any house on the date of loan sanction.
  • The discount available under section 80ee is subject to a maximum limit of ₹ 50,000.
  • The reduction is there on the interest of the Home loan.

Tax Benefit under Section 24B

As per section 24B of the Income Tax Act, you can claim a deduction on the interest of the Home loan, which is availed either to construct a new house or for the purchase of a residential property.

The deduction on Home loan interest is permitted on a credit basis. Hence, you can demand a discount for the year’s interest amount, whether or not you have paid till now.

Income Tax Benefit on Home Loan for Owning Second property

If you have more than one property, and both are self-occupied, then only one will be considered as self-occupied to calculate tax benefit on Home loan and income from house property. You have the option to choose either of the property as self-occupied to claim maximum tax benefit.

The tax benefit available for self-occupied property for interest on such a loan is a maximum of ₹ 2 Lakh under section 24(b). The deduction is available for actual value without any limit for lent-out property or deemed to be lent out.

Tax Benefit on Home Loan under Construction Property

For the property that is still under construction, you can claim the accompanying tax advantages:

  • Deduction for principal repayment for up to ₹ 1.50 Lakh.
  • The discount for the interest amount can be demanded in five equal installments after completing the construction within 5 years from the monetary year in which the loan is availed.

If the property construction does not get completed within 5 years from the year in which the loan is availed, then the deduction available for the interest on the loan will be available only up to ₹ 30,000.

HRA and Tax Exemptions

If you have availed yourself of a Home loan and are also staying in a rented house, you can claim both; income tax on Home loan and House Rent Allowance deduction. However, you need to note an important aspect here because you can claim the HRA benefit only if you live in a rented house. You can demand HRA reduction to lower of the following 3:

  • 50% of your salary in the case of metro cities and 40% in non-metro cities.
  • Actual HRA received.
  • The rent actually paid during the year minus 10% of your salary.

How To Claim Tax Benefit on Home Loan?

Follow these steps to claim tax benefit on a residential loan:

  • Calculate the tax deduction of interest on a residential loan you have to claim.
  • Next, you can submit your residential loan interest certificate to your employer so that the deduction can be adjusted with TDS.
  • Otherwise, you can file the ITR yourself and submit the certificate as required.
  • For self-employed, submitting the certificate is not required. However, it would be best to keep it with you as the IT department can ask for it.

Tax Benefit on Home Loan (FY 2018 – 2019)

  • Deduction of up to ₹ 2 Lakh is available for self-occupied property.
  • Self-occupied property means either you live with your family, or your family is living in the house without you.
  • Deduction on repayment of principal is up to ₹ 15 Lakh.

Home Loan Tax Benefit (FY 2017 – 2018)

  • You can claim a deduction for principal repayment u/s 80C for up to ₹ 1.50 Lakh.
  • For under-construction property, no deduction is available for principal repayment.
  • Property construction needs to be completed within 5 years from the loan’s availing for deduction of interest. The maximum limit of deduction is ₹ 2 Lakh.
  • Interest accrued and paid during the construction can be claimed in 5 equal installments after the construction is entirely subject to a maximum deduction of ₹ 2 Lakh in a year.

Visit Dialabank for more information about the Home Loan Tax and its benefits.


FAQs about Home Loan Tax

How do I claim tax benefits on the Home loan?

You can claim tax benefits on a loan either while filing Income Tax Return or submitting your employer’s Home loan interest certificate.

How much of a Home loan is tax-deductible?

You can claim a deduction of up to ₹ 1.50 Lakh for principal repayment and up to a maximum of ₹ 2 Lakh for interest on a Home loan in a financial year.

Is Home Loan good for tax benefit?

Yes, the government wants you to take the loan and buy your own house. You can claim a deduction for principal repayment as well as for interest on your Home loan.

What is the benefit of a Home loan?

By availing of Home loans, you are not required to pile huge savings to purchase your own house. Choosing your own money instead of a loan can get your fund to lock at a place and can take years to recover. While by availing of the loan, you can invest your savings in other areas, which will reap you higher benefit. Also, you can claim tax benefits available on the Home loan.

What is the benefit of a Home loan transfer?

You have the option to transfer your Home loan from one lender to another if the other one is providing a loan at a considerably lower rate of interest. It will help you bring down your EMI as well as overall interest outgo amount.

Can both husband and wife claim Home loan interest?

If both husband and wife are the co-owners and co-borrower of the loan, they both can claim deduction on Home loan interest.