Borrowers who purchase property with home loans are eligible for a variety of income tax deductions. These tax deductions could be claimed under four sections of the Income Tax Act: Sections 80C, 24, 80EE, and 80EEA. In this article, we will go over how these sections can help a home buyer take advantage of home loan tax benefits in FY24-25.
Why does the government provide a tax benefit for home loans?
Property ownership comes with the responsibility of paying taxes. This is why an individual’s income from residential property is taxed based on its potential to earn a specific amount in rent, even if the unit is vacant. However, to make property purchases more profitable, the government provides a variety of tax breaks, particularly if the property was purchased with a home loan. Purchasing a property with housing finance also provides additional benefits, as you can become a homeowner much sooner than if you had to rely solely on your savings.
Home loan tax benefits in FY24-25
Homebuyers are eligible for income tax benefits on both the principal and interest components of their home loan under various sections of the Income Tax Act of 1961.
| Tax deductions allowed on home loan principal + stamp duty registration charge | |
| Relevant Section/s in the income tax law | Section 80C |
| The upper limit on tax rebate | Rs 1.50 lakhs per annum |
| The upper limit on tax rebates for senior citizens | Rs 2 lakhs per annum |
| Tax deductions allowed on home loan interest | |
| Relevant Section/s in the income tax law | Section 24, Section 80EE, Section 80EEA |
| The upper limit on tax rebate | Up to Rs 3.50 lakhs per annum |
| The upper limit on tax rebates for senior citizens | Up to Rs 4.50 lakhs per annum |
Section 80C Deduction
Available for: Property construction, property purchase
Can be claimed for Self-occupied, rented, deemed-to-be-rented properties
How can home buyers avail of benefits under Section 80C?
If you have taken out a loan to build a home, the construction work must be completed within 5 years of the loan.
The house should not be sold within five years of ownership. In that case, any deductions you have claimed will be added back to your income and taxed accordingly in the assessment year in which the sale occurs.
Deductions under Section 80C are available on a payment basis; deductions can only be claimed for the actual amount the borrower pays in a given year.
How can I maximize my tax rebate under Section 80C?
If a property is jointly owned, each co-borrower can claim a tax deduction of Rs 1.50 lakh on their respective incomes under Section 80C. To be eligible for this benefit, spouses must be both co-owners and co-borrowers.
Deductions allowed for home loan interest
Deductions for home loan interest repayment are available under various provisions of the income tax code.
Deductions under Section 24 (B)
Available for: Property construction, property purchase
Can be claimed for: Self-occupied, rented, deemed-to-be-rented properties
How can home buyers benefit from Section 24?
If you have taken out a loan to build a home, the construction work must be completed within 5 years of the loan.
The deduction is limited to Rs 30,000 if the house is not built within 5 years of receiving the loan. This period begins at the end of the fiscal year in which the loan was borrowed.
The deduction can be claimed beginning in the year the construction is completed.
The loan should have been taken after April 1, 1999.
To claim the benefit, you must provide a certificate from the bank detailing the interest calculations.
Deductions under Section 24 are offered on an accrual basis, which means that interest is calculated separately for each year and the rebate can be claimed even if no actual payment is made.
Buyers who do not use a home loan can also benefit from the deduction under Section 24.
Section 24 also allows buyers to claim deductions even if they paid for the purchase out of pocket and did not take out a mortgage. The section allows the owner to deduct a flat 30% of the net annual value of a property if it is purchased entirely with the buyer’s personal funds. However, this rebate is not available if the property is self-occupied, as such properties have no net annual value under current tax laws.
How can you maximize your tax rebate under Section 24?
If a property is jointly owned, each co-borrower can claim a tax deduction of Rs 2 lakhs on their respective incomes under Section 80C. In this case, all of the owners must be co-borrowers.
Borrowers should also be aware that if they pay more than Rs 2 lakhs in interest in a single year, they have the option of carrying the additional expense forward for another three years to offset losses. This option is only available to property owners who generate income from their property.
Deductions under Section 80EE
Available for property purchase.
Can be claimed for self-occupied, rented, or deemed-to-be-rented properties.
Section 80EE was introduced for two years in the fiscal year 2013-15 with the goal of making homeownership more attractive to first-time home buyers by providing a rebate in addition to the deductions under Sections 80C and 24. At the time of its introduction, the deduction limit under this section was Rs 1 lakh. However, when it was reintroduced in 2016-17, the rebate limit was set at Rs 50,000 per year.
How do I get benefits under Section 80EE?
This benefit is no longer available to applicants for new home loans. Borrowers who took out the loan during the period when Section 80EE was in effect can, however, continue to claim higher benefits for the duration of their loan. Because Section 80EE does not require that the property be self-occupied to be eligible for the rebate, you can also claim it if it is rented or deemed to be let out.
Deductions under Section 80EE
Available for property purchase.
Can be claimed for: self-occupied, rented, or deemed-to-be-rented properties.
Benefits under Section 80EEA are in addition to those provided under Sections 80C and 24. Since the section does not specify the point, it is assumed that the benefits listed below are available to both residents and non-residents.
How can home buyers benefit from Section 80EEA?
The deduction is only available to first-time buyers.
Only buyers who do not claim deductions under Section 80EEA are eligible to claim Section 80EEA benefits.
The property value should not exceed Rs 45 lakh.
The carpet area of the unit is limited to 60 square meters in megacities and 90 square meters in other cities.
The loan should have been obtained from a bank or a housing finance company, not from friends or family members.
How do I maximize my tax benefits under Section 80EEA?
First-time buyers of affordable properties can claim an interest deduction of Rs 3.50 lakhs by combining the benefits under Sections 24 and 80EEA. Even better, if the property is jointly owned, each co-borrower can claim Rs 3.50 lakhs in annual tax benefits. Also, because Section 80EEA does not require that the property be self-occupied, you can claim the rebate on rented or deemed-to-be-let-out property.
What are the tax breaks for joint home loans?
Individual tax benefits are available to all who take out a joint home loan. Thus, two people who take out a joint home loan can claim tax benefits of up to Rs 1.5 lakh and Rs 2 lakh, respectively. Furthermore, if they are purchasing a house for the first time and have applied for a joint home, joint homeowners will receive additional tax benefits totaling up to Rs 10 lakh. This is only true if all of the prerequisites are met. Also, if the co-applicant is a woman, most banks offer a 0.5% interest rate concession to female home loan borrowers.
While tax deductions for home loan interest are permitted on two self-occupied residential properties, the total amount of deduction remains the same, i.e., Rs 30,000 or Rs 2 lakh, depending on the case.
Conclusion
Property ownership comes with the responsibility of paying taxes. This is why an individual’s income from residential property is taxed based on its potential to earn a specific amount in rent, even if the unit is vacant. However, to make property purchases more profitable, the government provides a variety of tax breaks, particularly if the property was purchased with a home loan. Purchasing a property with housing finance also provides additional benefits, as you can become a homeowner much sooner than if you had to rely solely on your savings.
