Home Loan Tax Benefits Under Income Tax Act

July 22, 2022


Today, taking out a home loan has become easier than ever. It is because of flexible tenure, competitive interest rates, and many home loan tax benefits. Availing of these income tax benefits on home loans can help the applicant save a lump sum over the repayment years. Read more to find out some more home loan tax benefits.

New Updates (Union Budget 2022-2023)

You can read the latest updates on the Financial Year Union budget of 2022-2023, presented by our Union Finance Minister Nirmala Sitharaman on 1st February 2022:

  • To claim an additional deduction for the interest of Rs. 1,50,000, the date was extended till March 31st 2022.
  • Individuals can claim tax holidays for affordable and extended housing projects that are extendable by another year with a new deadline of March 31st March 2022.
  • In the Union Budget 2022-2023, Nirmala Sitharaman proposed affordable rental housing projects. This helps enable the service of affordable rental housing for migrant workers.
  • There were no significant changes regarding tax deduction laws under home loans, except one. The major news was the allocation of Rs. 48,000 crores to the Pradhan Mantri Awas Yojana (PMAY).

Read the given-below income tax benefit on home loans for the financial year 2022 – 2023.

Income Tax Act Tax Exemptions
Section 80C Upto Rs. 1.5 lakhs on the principal amount due for repayment
Section 24(b) Upto Rs. 2 lakh on interest payment
Section 80EE There is an additional advantage of upto Rs. 50,000 on the interest payment for first-time homebuyers

Home Loan Tax Benefits

Many people dream of owning a home, but it is also a financial consideration. There is always some financial risk, whether buying a furnished home or building one. But to encourage people to buy houses, the Indian government introduced several sections of tax savings and deductions under the Income Tax Act, 1961. Here are some tax exemption laws that can save you money.

Section 24 of the Income Tax Act

Home Loan Interest Tax Benefit (For Construction or Purchase of Real Estate)

Under Section 24(b) of the Income Tax Act, 1961, you can claim a home loan tax exemption of up to Rs. 2 lakh on the EMI payments paid for your home loan. To claim home loan principal tax benefits under this section, you must fulfill the following conditions:

  • The limit of Rs. 2 lakh is applicable only if the property is self-occupied.
  • If you have rented out the property or are not self-occupied, there are no maximum limits for claiming interest.
  • You must purchase the property or complete the construction within 5 years after taking the loan.

Section 80 C of the Income Tax Act

Principal Amount Home Loan Tax Benefits

Section 80C of the Income Tax Act, 1961 allows all home loan applicants to claim a home loan tax exemption of up to Rs. 1.5 lakh on the principal amount that will be repaid during the tenure. Some conditions help you claim a housing loan tax benefit under this section:

  • The house construction must be completed before you start the claim under section 80C.
  • You should not transfer or sell the property within 5 years of occupancy.
  • If you sell the property within 5 years all the deductions already claimed will be considered part of your income in the year of the sale of the property.

Section 80 EEA

Home Loan Tax Benefits On Interest

As first-time home buyers, applicants can claim tax deductions of about Rs. 50,000 on the interest payment on a home loan. We can say that this home loan tax deduction is more than the exemption of Rs. 2 lakh, which is allowed only under Section 24(b). Here are some conditions that are applicable for claiming tax under Section 80EE.

  • It must be the home loan applicant’s first property.
  • The market value of the home must not be more than Rs. 50 lakh.
  • The home loan amount should be above Rs. 35 lakh.

Comparison of Section 24 and Section 80 C

Read the given-below table below that compares home loan tax benefits under Section 24 and Section 80 C.

Section 80 C Section 24(b)
You can only save up to Rs. 1.5 lakh. You can save up to Rs. 2 lakh if self-occupied
Applicable to the principal repayment amount. Applicable on monthly EMIs.
The sale or transfer of property within 5 years of possession is not allowed. If you are not self-occupied, there will be no maximum limit for claiming interest.
House must be completed when you apply for tax deduction under this section. The house must be completed within 5 years of getting the loan amount.

Joint Home Loan Tax Deduction

If you apply for a home loan with a co-applicant, you have a higher chance of getting your home loan approved. This type of home loan is known as Joint Home Loan. Every bank or HFC readily funds a joint home loan, as there are multiple borrowers to repay the loan.

A joint home loan gives the borrowers more repayment flexibility, reduced risk of EMI, and several other benefits. Another prominent factor is that the joint owners are eligible for a joint home loan tax exemption. This means that all the co-applicants can claim housing loan tax benefits separately.

Every co-applicant can claim a tax deduction of up to Rs. 2 lakh for the interest payments and Rs. 1.5 lakh for the principal repayment amount. These benefits are claimed under Section 24(b) and Section 80C. All these applicants must be registered as co-owners on legal documents of the property and pay the EMIs.

Deductions From Amount Deduction Section of the Income Tax Act Terms
Interest Rs. 2 lakh 24b For the construction or purchase of a new house. The structure must be completed within 5 years from the financial year the loan was availed.
Interest Rs. 1.5 lakh 80EEA For property with a stamp value of up to Rs. 45 lakh.
Interest Rs. 50,000 80EE Loan amount of up to Rs. 35 lakh and for property up to Rs. 50 lakh.
Principal Rs. 1.5 lakh 80C The property must not be sold before 5 years of possession is completed.
Stamp Duty Rs. 1.5 lakh 80C Must be claimed in the same financial year as it was spent.

How Can You Claim Home Loan Tax Benefits?

To take advantage of the home loan tax benefit and tax deduction, you have to follow the steps outlined below:

Step 1: You have to first compute the tax deduction to claim it.

Step 2: Make sure that you are the house owner or co-owner of the property in a joint home loan scheme on the legal documents.

Step 3: You must submit the certificate of home loan interest to your company so that they can adjust the tax-deductible at the source.

Step 4: You can file your income tax by yourself or by an agency.

Step 5: If you are self-employed, you don’t have to submit any documents anywhere. You just have to keep them to yourself in case there is any requirement from the IT department in the future.

Tax Benefits Calculation on Home Loan

The most straightforward way to compute the tax benefits of a home loan scheme is by using an online calculator. You simply have to enter the home loan-related details, and the results will display on your screen. Here are the details you have to enter:

  • The principal loan amount.
  • The tenure of the loan repayment.
  • The fixed or floating rate of interest.
  • The date when the loan started or is going to start.
  • The gross annual income.
  • All the existing home loan deductions on income tax under section 80C/D.

Home Loan Tax Benefits on Second Home

There are some major tax benefits for individuals who own two houses and want to make some tax savings on a home loan. The perks are limited till the time you haven’t compensated for your home loan entirely. The income tax benefit on home loans is as follows:

  • You can have an income tax benefit on a second home loan if you use it as a vacation or retirement retreat. It is because the self-occupied asset benefits are only available for one property, and the annual rent is assessed as a taxable one for another property.
  • If you are renting or leasing out your second home, then the actual rent you make will be considered taxable income with specific rules.
  • Municipal taxes are allowed as a deduction in the financial year they are paid. The taxes are deductible for the current or previous financial year.
  • Whether your second property is technically or substantially let out, you can deduct the actual interest paid on the house loan. This is when the property is self-occupied and the maximum interest rate amount is deducted at Rs. 2 lakh per year per specific criteria.
  • If you are self-occupying your second home, this house will be considered with a yearly zero value. According to the Income Tax Act, 1961, the other place is considered a let out and will be taxed under the Income from House Property.
  • If you have two Self Occupied Properties, select one and treat it as SOP. The remaining house/es will be further divided into Deemed Let-Out properties under the act. Further, if one of your properties is a DLOP, it will be considered a rental property. A notional result will be applied to the taxable income. Maintenance and general supervision are eligible for a 30% reimbursement.

Frequently Asked Questions (FAQs)

What are the tax benefits of a home loan?

The most prominent home loan tax benefit is that the borrower can claim a tax deduction both on the principal loan amount and the EMIs. Home loans help individuals save some money from the tax that they have to pay every financial year to the government.

Who is eligible to claim tax deductions on home loans?

The owner and co-owner are both eligible to claim income tax benefits on home loans.

How much tax can be saved on a home loan?

One can claim a home loan tax exemption of up to Rs. 2 lakh after the complete construction of the house within 5 years Under Section 24 of the Income Tax Act, 1961.

How do I claim tax benefits on a home loan?

To claim the tax benefits, you have to be either the owner of the property for which the loan has been taken or be the co-applicant of the property. However, you can also claim the benefits through your employer or by filing the ITR on your own.

Tushar Gautam is a content writer inclined to enlighten his readers about the world of finance through Urban Money.

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