Know How to Calculate Home Loan Tax Benefits Properly?

Apart from being everyone’s dream, purchasing a house is also the most significant financial decision in a person’s life. The sense of peace and accomplishment of buying a home is priceless. With Home Loans, this significant financial decision seems easy to handle. And several sections in the Income Tax Act 1961 offer tax benefits to encourage home ownership among Indian citizens. Aspiring home buyers can save substantial amounts on different loan components by availing these tax benefits.

Those planning to purchase a property soon must go through this quick guide to learn how to calculate a tax benefit on Home Loan.

Tax Benefits Under Section 80C

Section 80C of the Income Tax Act 1961 allows Housing Loan borrowers to get a tax exemption of up to INR 1.5 Lakh. This tax benefit is on the principal loan amount repaid during a financial year. And to claim the deduction, the borrower needs to fulfil the following conditions: 

  • Perform a Home Loan eligibility check to calculate an adequate loan amount and claim tax benefits accordingly.
  • The house construction needs to be done to claim a tax deduction on Home Loan.
  • The borrower must not sell or transfer their property within five years of its possession. And in case the borrower does, all tax deductions they claim earlier will convert into income and become taxable.

Tax Benefits Under Section 24(B)

Section 24(B) of the Income Tax Act 1961 allows borrowers to claim an income tax redemption of up to INR 2 Lakh on loan interest payments. Here are a few conditions to fulfil:

  • The limit of INR 2 Lakh is applicable only when the borrower self-occupies the property.
  • Upon renting the property, the borrower won’t be eligible to claim tax deductions on interest payments.
  • The borrower must complete the property’s construction or purchase it within five years of loan disbursal to avail tax benefits.

Tax Benefits Under Section 80EE

First-time homebuyers can claim a tax deduction of up to INR 50,000 on the interest payment under Section 80EE. The deduction is in addition to the INR 2 Lakh a borrower gets under Section 24(B). Check out the conditions to claim a tax benefit on Home Loan under this section:

  • The tax deduction is applicable only for Home Loans taken between April 2016 and March 2017.
  • The home should be the borrower’s first purchased property.
  • The home’s value should not exceed INR 50 Lakh, and the Home Loan amount should not exceed INR 35 Lakh.

Tax Benefits on Affordable Housing Loans Under Section 80EEA

Finance Minister, Nirmala Sitharaman, announced the 2019 Union Budget, which significantly boosted the ‘Housing for All’ initiative in India. It offers an additional tax benefit of INR 1.5 Lakh on Home Loan interest payments from April 2019 to March 2020. The tax deduction is to help homebuyers obtain low-cost financing to purchase affordable homes construction estimation.

Under Section 80EEA, homebuyers can claim a tax deduction of up to INR 1.5 Lakh on interest payments in addition to the INR 2 Lakh tax deduction under Section 24 (B). Here are a few conditions to fulfil:

  • The tax benefit on Home Loan under this section is available for first-time homebuyers only. Therefore, one must not own any other residential home in their name.
  • The property’s value should not exceed INR 45 Lakh.

Tax Benefits on Joint Housing Loans

Apart from sharing the loan repayment, increasing eligibility, and making property transfer easier, applying for a joint Housing Loan also increases the tax benefit on Home Loans. Each co-applicant can claim a tax deduction of up to INR 2 Lakh on interest payments and up to INR 1.5 Lakh on principal repayments separately. But this benefit is applicable when both the co-applicants are also the property’s co-owners and contribute towards loan EMIs.

Tax Benefits on Registration and Stamp Duty Charges

A home buyer needs to pay stamp duty charges to the area’s sub-registrar to purchase a property in their locality. Borrowers can claim a tax benefit of up to INR 1.5 Lakh on these charges under Section 80C. However, it is a one-time redemption that a borrower can make only for the year of possession.

A Home Loan tax benefit calculator helps calculate the tax savings for a financial year. It calculates an approximate amount based on the applicant’s profile type, loan payments, gross annual income, and deductions in a year. Once you know what tax benefit on Home Loans you can claim, visit the income tax department’s website to proceed with your tax savings.

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