How to Avail Max Home Loan Tax Benefit in India?

Home loans are almost everyone’s run to, isn’t it? Just like how a home loan saves you in the hardest of times, it also plays as a great tool to comprehend the sum you have to put in. Also, when it comes to benefits, there is no better loan you can ever look at. In this post, we are going to be talking about the tax benefits that revolve around home loans and how you can benefit from them.

The Tax Benefits of a Home Loan

Every person’s dream is to own a home. To encourage citizens to invest in real estate, the government offers a variety of tax breaks on house loans under the Income Tax Act of 1961 (“the Income Tax Act”). It is significant to understand all of the home loan tax benefits since they can help you save a large amount of money on your tax payments.

A home loan includes both principal and interest payments. Tax deductions are available under each of these categories under Sections 80C and 24(b) of the Income Tax Act.

The table below summarizes the tax incentives available under the respective sections of the Income Tax Act of 1961.

  1. a) Section 24 – Rs. 2 lakhs for a year
  2. b) Section 80C – Rs. 1.5 lakh for a year
  3. c) Section 80EE – Rs. 50,000

Tax Deduction on Interest

This is a crucial point that you would have to remember. Now, before you took your loan, you probably went from bank to bank to know the interest rates. For instance, if you want to Axis Bank, find out what the Axis home loan interest rate is; if it wasn’t, you went on. The struggle is real. So, why not claim your deductions on the interest that has been paid?

Section 24(b) allows you to deduct the interest paid on your home loan from your gross income. You can deduct up to Rs 2 lakh in interest payments on a self-occupied home. The same holds true if your property is rented out. However, the 80C deduction does not apply to commercial buildings. You can claim this deduction on an accrual basis, that is, on an annual basis, even if you did not pay the interest amount in that year but did pay in excess the previous year. Losses cannot be carried forward for self-occupied properties. For business purposes, it can be carried forward for a further eight years.

Tax Deduction on Principal

You can claim a deduction for principal repayment under Section 80C. This deduction covers the fees you pay for home registration and stamp duty. This part allows you to claim a deduction of up to Rs 1.5 lakh. This, along with other tax-saving devices such as fixed deposits, provident funds, insurance premiums, and so on, can be deducted from your taxable income. However, there is a significant restriction on this tax benefit: you cannot sell the residence within five years of taking possession. If you do this, the tax benefit will be deducted from the taxable income in the year you sell the dwelling.

New Updates of the Union Budget of 2023 – 2024

  • The eligibility period for claiming an extra deduction for interest paid on a loan taken to purchase an affordable dwelling has been extended until March 31, 2022.
  • The deadline for claiming a tax break for an affordable housing project has been extended by another year. The revised deadline is March 31, 2023.
  • To appraise the production of affordable rental housing for migrant workers, a new tax exemption was suggested for notified Affordable Rental Housing Projects.
  • While there were no significant adjustments to home loan deductions, the allocation of Rs.48,000 crore to the Pradhan Mantri Awas Yojana (PMAY) was noteworthy.

How to Claim Your Home Loan Tax Benefits?

It is straightforward to get tax benefits on a house loan. The steps for claiming the tax deduction are outlined here.

Step 1: Determine the tax deduction that will be claimed.

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

Step 3: Provide your employer with your home loan interest certificate to amend the tax deductible at source.

Step 4: If you do not finish the preceding step – you need to file your tax return on your own.

Step 5: If you work for yourself, you are not needed to submit these documents elsewhere. Simply keep them on hand in case the IT department has any queries.

How to Tally the Deduction?

The simplest method is to use an internet calculator to calculate your tax benefits on a house loan. To obtain a complete tabulation, simply enter your home loan information and click calculate. Typically, the following information is required:

  • Amount of the loan.
  • Loan Term.
  • The interest rate.
  • Date of Commencement.
  • Annual Gross Income.
  • Existing Deduction Under Section 80C/D.

How to Make the Most of These Deductions?

If you and your partner both work, it is best to apply for a shared home loan. A shared home loan raises not only loan eligibility but also the combined tax benefits. Under this, both partners can jointly claim Section 80C deductions worth Rs 3 lakh on the principal amount. Furthermore, the overall tax deduction on interest repayment under Section 24 of your Home Loan has been raised from Rs. 2 Lakh to Rs. 4 Lakh.

Final Note

It is not just with home loans, but in every possible aspect, one of the most primary things that you would have to look for would be the tax benefits.

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