Jun 21, 2023

How to Claim Tax Benefits on Home Loans? Complete Guide

by Godrej Properties Limited

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A home loan not only helps fulfill your dreams but also offers attractive tax benefits. Repaying a home loan allows you to enjoy a tax rebate on home loans under the Income Tax Act of 1961. The repayment includes the principal amount and the interest paid. By understanding the provisions of Section 80C and 24(b) of the Income Tax Act, you can maximise the tax advantages available for both principal and interest. When planning your taxes for the financial year, it's essential to be well-informed about the various housing loan tax benefit.

Here are the various tax benefit of home loans that can avail.

Home Loan Tax Benefits under Section 80C – Deductions on Principal Repayment

Section 80C provides deductions on the principal amount:

  • You can claim up to ₹ 1.5 lakhs annually from your taxable income for principal repayment on both self-occupied and let-out properties.
  • Stamp duty and registration charges can be included, but this deduction can be claimed only once.
  • Completion of property construction is necessary to claim this deduction.
  • To be eligible, you must not sell the house within five years of possession.
  • If the house is sold within five years, the home loan tax exemption claimed will be reversed and added to your income in the year of sale.

Tax Benefits under Section 80EE

Here is the deduction under section 80EEA that a home loan borrower can avail of:

  • You can avail of tax benefits of up to ₹ 1.5 lakhs on the interest component paid on a home loan under section 80EE.
  • This benefit is in addition to the existing exemption of ₹2 lakhs under Section 24(b).
  • The property value must be less than Rs.45 lakh.

All these benefits can be availed under section 80EEA of the Income Tax Act. 

Home Loan Income Tax Benefits in 2023

For interest paid on home loans for affordable housing, an additional tax 80EE deduction of Rs.1.5 lakh can be claimed until 31 March 2022. This applies to loans received until 31 March 2024. The total available Income Tax Deductions for this period can be up to Rs.7 lakh.

Deduction for Joint Home Loan

If a housing loan is availed by two or more persons, each can claim a deduction on the interest paid, up to ₹2 lakhs each. Deductions on the principal paid, up to Rs.1.5 lakhs each, can also be claimed. However, all applicants must be co-owners of the property to be eligible for this deduction. Therefore, a joint home loan offers greater tax benefits.

How to claim tax benefits on a home loan?

Claiming tax benefits on a home loan is a straightforward process. Here are the steps to follow:

Step 1: Determine your eligibility for a house loan tax exemption

Step 2: Verify that you are a co-borrower on the loan or that the property is registered in your name.

Step 3: Give your employer the certificate for your home loan interest tax benefit so they can deduct taxes at source.

Step 4: You must separately file the tax return if you haven't given the certificate to your employer.

Step 5: If you are self-employed, keep the required paperwork close to hand in case the tax agency asks for it in the future.

 

Frequently asked questions

1. What are the tax benefits of home loans?

Ans: By taking a home loan, you can enjoy tax savings under the provisions of the Income Tax Act of 1961. The recent budget announcements have further extended the deadline for additional deductions on interest payments until 31 March 2024. This extension applies to all home loans sanctioned until that date. While a housing loan may seem costly, the available tax benefits can significantly reduce your expenses. Discover how you can maximise these advantages and save money every year.

2. Are there home loan tax benefits on the second house?

Ans: Under the existing provisions, housing loan tax benefits are applicable on the interest payable for home loans. You can claim the full amount of interest paid as a deduction.

A proposal has been made to allow the second self-occupied home to be treated as a self-occupied property as well, enabling borrowers to save more on taxes.

3. How to claim tax benefits on a home loan?

Ans: To claim the deduction, the borrower must submit the necessary documents, such as the loan agreement, interest certificate, and other relevant paperwork, to their employer or the income tax department.

4. How to calculate tax benefits on a home loan?

Ans: To determine the tax benefits of a home loan, you can conveniently use an online calculator. Just input your loan details, such as the loan amount, tenure, interest rate, loan start date, gross annual income, and existing deductions under 80C/D. Click on calculate, and a comprehensive breakdown will be displayed, providing you with the necessary information about your tax saving on your home loan

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