Income tax exemption on home loan

According to the Income Tax Act of 1961, getting a house loan can help you save money on taxes. If you're thinking about getting a home loan, you'll be relieved to learn that you can get a lot of tax benefits on your equated monthly instalments (EMIs). While purchasing a home can be an expensive goal, a housing loan can assist you in fulfilling your desire by providing several tax advantages. In this article, we will discuss all the tax benefits available to homeowners.

What are Home Loan Income Tax benefits?

The home loan income tax benefit under the applicable sections of the Income Tax Act of 1961 is listed in the table below:

Section 24: Tax benefit on the Interest amount

A taxpayer is allowed to claim a deduction on the  interest paid on a house loan in addition to the principal amount repaid on loan as per section 24. The interest component of your equated monthly instalments or EMI for the year can be deducted from your total income up to a limit of Rs 2 lakhs. In the case of self-occupied property, the maximum amount of interest that can be claimed in a given financial year is Rs 2 lakh. There is no maximum amount of interest that can be claimed on rental property.

Interest payments in excess of Rs 2 lakh on a self-occupied property will not be carried forward or offset against any other income. This deduction can be reclaimed beginning with the year in which the house is constructed. These deductions apply only to properties completed within 5 years; if it is not completed within the given timeframe, you can only claim up to Rs 30,000.

If you have a second property that is either occupied or vaca nt, the interest paid on the second home loan is likewise reimbursed under section 24. However, in a financial year, the total deduction for interest paid on a home loan for two residences should not exceed Rs 2 lakhs.

Also Read: 7 Ways Goods and Service Tax benefits the Economy

Section 80C: Tax benefit on Principal amount

When you take out a home loan, you must make monthly equated monthly instalments or EMI payments, consisting of two main components: the principal amount and the interest payable. The amount paid as a significant component of the EMI can be deducted under section 80C of the Income Tax Act of 1961. The principal amount deductions are dealt with in Section 80C.

A home loan is usually taken to buy or build a house, and the house must be constructed within 5 years of the end of the fiscal year in which the loan was obtained.

Section 80C allows self-occupied and let-out properties to deduct up to Rs 1.5 lakh in principal repayment from taxable income each year. The costs of registration and stamp duty are frequently incorporated into the home loan deduction in income tax. However, it may only be claimed once, and to do so, you must first complete the property's construction. The total loss that can be claimed under section 80C is limited to Rs 1.5 lakh. This deduction is available beginning with the year in which the house is constructed.

It's important to note that to claim this deduction, the customer must not sell the house they bought or built with the loan within 5 years of taking possession. If they sell the house within 5 years of taking possession, any income tax deduction for home loan will be repaid in the year it was sold, and the amount will be applied to the income for that year.

Your property will be regarded as a self-occupied residence if you have a second home inhabited or vacant. If you rent out your second home, it's known as a 'let out property,' and it's also eligible for a tax deduction under section 80C. If both houses are loaned, you can claim a deduction of up to Rs 1.5 lakh on the principal amount repaid on both home loans.

Section 80EE: Income tax benefit on home loan

This deduction was reinstated in the fiscal year 2016-17 for the first time for the home buyers who availed of house loans. Taxpayers who took out a house loan during the fiscal year 2016-17 were eligible for an added tax deduction of up to Rs.50,000 under Section 80EE. The conditions listed below must be met to claim this deduction:

• To claim an additional Rs 50,000, the loan amount should be Rs 35 lakhs or less, and the property value should not exceed Rs 50 lakhs.
• The loan must be approved between April 1, 2016, and March 31, 2017.
• On the day the loan is approved, the individual should not have any other properties in his name, and this residence must be his primary home.

Please note the maximum added benefit is capped at Rs 50,000 a year. Even though home loan income tax benefit is unavailable for loans taken after April 1, 2017, you can claim this deduction until the loan is entirely repaid if you have taken a home loan in the fiscal year 2016-17.

Section 80EEA: Home loan income tax benefits 

Section 80EEA was created to assist the middle-income group in purchasing a home by providing increased financial assistance. 

• In the 2019 budget, an extra deduction of up to Rs 1,50,000 has been proposed for homebuyers under Section 80EEA. 
• Section 80EEA allows first-time home purchasers to save an additional Rs 1.50 lakh each year on interest payments on their house loans. 
• As per this act, an added Rs 1.5 lakh deduction for interest payable on loans obtained up to March 31, 2020, to purchase an affordable property worth up to Rs 45 lakhs. 
• An individual can claim Rs 3.5 lakhs as the amount of interest on a home loan as a deduction from their gross total income.  

Please note section 24 allows all types of buyers to deduct their home loan interest payments, The Section 80EEA home loan rebate in income tax of Rs 1.50 lakhs is in addition to this limit.

Who can claim a home loan deduction in income tax under Section 80EEA?

• Only first-time house buyers are eligible for the benefits under this section, as it stipulates that the borrower must not own any residential property when the home loan is granted. 
• Benefits are available to borrowers whose home loans were approved between April 1, 2019, and March 31, 2022. 
• Individual buyers are the only ones who can claim deductions under section 80EEA. This means that businesses, Hindu undivided families, and others are not eligible for benefits. 
• If the joint owners are co-borrowers, they can claim Rs.1.50 lakhs in deductions under this section if they meet all other requirements.
• Buyers who obtain a home loan from a financial institution are entitled to home loan income tax benefits; however, buyers who obtain a home loan from family, relatives, or friends are not eligible for benefits under section 80EEA.
• The loan should be used to purchase the property rather than for reconstruction, repair, or maintenance. It is also stated that if a buyer claims deduction under Section 80EE, they are not authorised to claim under Section 80EEA.

Joint Home Loan

People all around the country prefer joint home loans since they are one of the simplest ways to have a home loan approved. You must be a co-owner of the property purchased jointly to be eligible for the tax benefits on the principal amount repayment and interest payment.

Both parties listed as co-owners on a joint house loan are entitled to tax deductions of up to Rs.1,50,000 on the principal amount and an extra benefit of up to Rs 2,00,000 on the interest payment. Both borrowers must ensure that deductions for stamp duty and registration fees claimed under Section 80C of the Income Tax Act are claimed within the same fiscal year.

One must be registered as a co-borrower of the house loan in addition to being a co-owner of the property if they want to claim the tax benefits associated with the loan. If you're registered as an owner and not a borrower, you won't be eligible for any tax benefits.

The completion of the house construction is the final prerequisite for collecting tax benefits on shared home loans. Homeowners can start claiming home loan income tax benefits in t he year after the construction work is completed.   

Steps to claim Home Loan Income Tax Benefits?

The process to claiming your home loan interest income tax is as follows:

• Calculate the amount of the tax deduction that is to be claimed.
• Check to see if the house is registered in your name or a co-borrower on loan.
• To amend the tax deductible at source, send the home loan interest proof to your employer; otherwise, you can file your tax return.
• You are not obligated to submit these documents anywhere if you are self-employed.

Information required to Calculate Home Loan Income Tax Benefits

To calculate the Home Loan Income Tax Benefits on a home loan, you'll need the information below:

• Loan Amount
• Tenure
• Interest Rate
• Loan Start Date
• Gross Annual Income
• Existing Deduction Under 80C/D

Documents required to claim home loan deduction in income tax 

• The Property's Ownership Information.
• Document proving the house's completion or purchase date.
• Certificate of Loan that displays the division between the principal amount and the interest paid in EMIs.
• Proof of Municipal Taxes Paid Throughout the Year

The Taxation of Pre-Construction Interest

Most homebuyers purchase home loans before the construction is completed and begin the EMI payments. Section 24 indicates that home loan deduction in income tax for interest payments is not permitted until the home construction work is completed. The accrued interest before the completion of the home construction should be consolidated, and the total aggregate amount should be permitted as a tax-deductible in 5 equal payments for 5 consecutive fiscal years beginning with the year in which the construction was finished.

Also Read: How To Save Income Tax on Income From Salary For Individuals

Important points about Home Loan Income Tax Benefit

• Only if the construction has been complet ed within 5 years of the end of the fiscal year in which the loan is borrowed will the tax deduction be available.
• Interest paid on an outstanding balance is not deductible.
• The commission paid for obtaining the loan is not deductible by the taxpayer.
• If a taxpayer does not make any revenue from home but pays Municipal Taxes and Interest on a home loan, this will result in a loss, set off against income from other headings in the same Financial Year.
• If the loss cannot be balanced against other sources of revenue in the same fiscal year, it can be carried over t o subsequent years and offset against income from the Property for the next eight years.
• Only the person who purchased or constructed the property using the Loan amount is eligible for Tax Benefits. The Property's Successor is not eligible for the same.

Conclusion

The Home Loan Income Tax Benefit is a valuable financial aid initiative provided by the government to those experiencing difficulties building a home. Individuals can avail of a home loan that is eligible under home loan deduction in income tax under section 80C. This significantly helps in availing of home loans where an individual would get numerous other benefits as well. Therefore, we hope we have been able to convey the essential information regarding income tax house loans and their benefits in this article. For more information related to GST, business, accounting and taxation, download the Khatabook app.