A home loan tax benefit will not only help decrease your interest cost but also help build equity. Knowing which sections of the Income Tax Act are applicable will help you maximise your claim on both the principal and interest.
What is a Home Loan Tax Benefit?
The home loan tax benefit is a tax deduction on principal repayment and interest, which reduces taxable income. The purpose of these tax benefits is to promote home ownership and make monthly budgets easier.
Section 80C – Principal Repayment Deduction
How much deduction can you claim under Section 80C?
Under section 80C, you can claim a deduction for principal repayment up to ₹1.5 lakh in a financial year. This includes the principal component of the EMI, along with certain stamp duty and registration charges. Principal paid after possession qualifies for 80C. But the section 80C limit is inclusive of other tax benefits, such as for investments.
Who is eligible for this deduction?
Generally, eligibility begins after possession. For under construction properties, eligibility starts upon possession.
Section 24(b) – Interest on Home Loan Deduction
How does Section 24(b) work?
Section 24(b) allows you to claim deduction for interest paid on a home loan amounting up to ₹2 lakh per financial year for a self occupied property. Rental property may be subject to other rules under the income from house property provisions.
Example of Tax Saving on Home Loan Interest
If you have annual interest of ₹1.8 lakh, you can claim this under Section 24(b) for a self-occupied property, this will help reduce taxable income.
Section 80EE – First-Time Home Buyer Benefit
What is the additional deduction under Section 80EE?
You can claim a deduction of up to ₹50,000 under Section 80EE if you qualify as a first-time homebuyer. This deduction is only available for loans sanctioned between April 1, 2016, and March 31, 2017 and is subject to certain conditions.
Section 80EEA – Affordable Housing Deduction
How can buyers claim up to ₹1.5 lakh more?
You can even claim a deduction under Section 80EEA up to ₹1.5 lakh for eligible affordable housing loans. But it is only available for loans sanctioned between April 1, 2019, and March 31, 2022 and is subject to other conditions.
Combining Multiple Sections for Maximum Savings
You may claim 80C for principal and 24(b) for interest simultaneously. If you also qualify for 80EE or 80EEA, you get more tax benefits. So, keep track of deductions to maximise limits and home loan tax benefits.
Benefits of Home Loan in Tax Planning
- Dual advantage: Value of the property increases and you get tax benefits on repayments.
- Encourages home ownership: Tax deductions are designed to make property ownership feasible and attractive.
- Long-term financial planning benefits: Saving regularly helps you properly plan your long-term financial goals.
Common Challenges in Claiming Home Loan Rebate
- Documentation issues: Not providing loan statements or receipts will slow down your claim of deductions.
- Delay in property possession: Tax benefits cannot be claimed until property possession is taken.
- Incorrect deduction claim: Though both applicants can claim the deduction, it has to be in proportion to their repayment share.
Tools and Resources to Calculate Your Savings
Utilise income tax calculators and bank tools to gauge combined deductions. Online calculators make it easy to see how 80C, 24(b), 80EE, and 80EEA will affect your taxable income. For example, if you enter the loan details into an online calculator, you can instantly see your EMI and the total interest. Based on this, you can plan your taxes and maximise your savings. Knowing section-wise deductions will help you plan and save. Choose reputed institutions like PNB Housing Finance to ensure your documents are clear and you can claim deductions without any hassles.
Also Read : Home Loan Tax Rebate: Have You Claimed These Tax Benefits Yet?
