Maximise tax savings with home loan deductions: Check details to know more

Home loan borrowers should be aware of all the income tax breaks available on home loans, as this can substantially reduce their tax liabilities

Home loan borrowers can significantly reduce their tax liabilities by understanding and utilising the various deductions available under the Income Tax Act of 1961.
 

“Housing loans serve as a great source for ‘home building’ with tax savings. Taxable income can be reduced from interest payments and repayment of loans. If self-occupied, interest up to Rs 2 lakhs and if let out then the actual amount of interest. Repayment of principal amount up to Rs 1.50 lakhs will also go into reducing taxable income. In a nutshell, a housing loan for a self-occupied home will enhance the take-home income by approx. Rs 1.05 lakhs [at 30 per cent slab rate]. However, this benefit is not available, if taxation under the new scheme is opted for,” said Chintan Ghelani, Associate Partner at N.A. Shah Associates.
 

 

Let us understand key deductions available in detail: 
 

Repayment of the principal amount of a home loan: When repaying a home loan, your EMIs include both principal and interest components. Under Section 80C of the Income Tax Act, 1961, you can claim a deduction on the principal repayment of your home loan, up to Rs 1.5 lakh annually.
 

Additionally, expenses such as stamp duty and registration fees incurred during the purchase of the property are also deductible under this section. Even if you own a second home that is vacant or occupied by your parents, it can still be considered self-occupied and eligible for these deductions.

 

Interest paid on housing loan: In addition to the deduction for principal repayment, Section 24 of the Income Tax Act permits a deduction for the interest paid on a home loan. For a self-occupied property, you can claim an annual deduction of up to Rs 2 lakh. However, any interest payment exceeding Rs 2 lakh in a fiscal year is not deductible in subsequent years

 

Deduction on buying an affordable home: Section 80EEA allows first-time homebuyers to claim a deduction of up to Rs 1.5 lakh per financial year on home loan interest. This benefit applies to affordable housing properties with a stamp duty value up to Rs 45 lakh. Each co-owner in a joint ownership can individually claim this deduction, provided the home loan is sanctioned between 1st April 2019 and 31st March 2022.
 

This deduction is available in addition to the existing Rs 2 lakh deduction under Section 24(b) for home loan interest. To qualify, the individual must not own any residential property at the time of the home loan sanctioning. This provision is designed to encourage first-time buyers to invest in affordable housing.
 

Deduction for first time buyer: Section 80EE of the Indian Income Tax Act provides tax benefits for first-time home buyers on the interest paid towards their home loans. Under this section, you can claim a deduction of up to Rs 50,000 per financial year. This benefit can be availed every year until the loan is completely repaid.

 

As the real estate sector in India continues to grow, these tax benefits play a crucial role in making home ownership more attractive and affordable. However, experts advise that while tax savings are important, they should not be the sole factor in deciding to take a home loan. Potential homeowners should carefully consider their financial situation, long-term goals, and the overall cost of the loan before making a decision.