Buying a new home is indeed a huge investment. But, are you aware that buying a new home can help you get plenty of tax saving options? The tax laws in India offer multiple tax saving benefits on principal and interest amounts.
Home loans should be an excellent option for availing the best tax saving benefits. Having a good knowledge of these benefits should help you make substantial savings and make your home ownership affordable.
Overview of tax benefits on home loans
The tax benefits on home loans in India are typically covered by three distinct sections of the Income Tax Act. Each of these sections offers specific tax benefits.
Section 80C
The section covers principal repayment deduction. Section 80C lets the taxpayers claim deductions on the principal amount paid during the financial year. The maximum limit that you can claim under the section reads Rs 1.5 Lakh per annum.
These deductions also include payments made towards stamp duty and registration charges, though these can only be claimed in the year the expenses were incurred.
Key conditions include:
- The property must be fully constructed
- The property cannot be sold within 5 years of possession, or previously claimed deductions will be added back to taxable income.
- The deduction limit is shared with other Section 80C investments like PPF, ELSS, and life insurance premiums.
Section 24(b)
This section offers claims for deductions on the interest payments. The limits available would be dependent on the property usage.
- Self-occupied property: Maximum deduction of ₹2 lakh per annum
- Let-out property: No upper limit on interest deductions
Important conditions you should fulfil to get the benefits are
- The loan must be taken for purchasing or constructing a residential property
- If construction is not completed within 5 years of loan sanction, interest deduction is capped at ₹30,000 annually after completion
Note – As per Budget 2025, the limit for self-occupied properties has been increased to ₹3 lakh per annum, though this appears to be speculative.
Section 80EE/80EEA
The section provides benefits for the first time home buyers.
The benefits you can avail under the Section 80EE include
- Additional deduction of up to ₹50,000 per annum
- Applicable for loans sanctioned between April 1, 2016, and March 31, 2017
- Property value should not exceed ₹50 lakh
- Loan amount should not exceed ₹35 lakh
Under Section 80EEA, you can avail the following benefits –
- Higher additional deduction of up to ₹1.5 lakh per annum
- Applicable for loans sanctioned between April 1, 2019, and March 31, 2022
- Property’s stamp duty value should not exceed ₹45 lakh
- Cannot be claimed simultaneously with Section 80EE benefits
Tax deductions for Joint Home Loans
If you opt for joint home loans, you can avail of a few additional benefits. Each of the co-borrowers can claim deductions individually. However, each of the co-borrowers should meet certain conditions.
The eligibility requirements for the joint home loans can include
- Co-borrowers must also be co-owners of the property
- Each must contribute to EMI payments as a financial co-applicants
- Deductions are available in proportion to the ownership share
The benefits that each of the co-borrowers can avail include
- Up to ₹2 lakh under Section 24(b) for interest payment
- Up to ₹1.5 lakh under Section 80C for principal repayment
- Up to ₹50,000 under Section 80EE (if eligible)
- Up to ₹1.5 lakh under Section 80EEA (if eligible)
Tax Benefits on Joint Home Loans
If you are a family, the joint home loans can be an excellent choice for better tax saving benefits. Imagine a situation where both husband and wife are the co-borrowers and co-owners. Each of them can have combined annual tax savings of up to ₹7 lakh (₹3.5 lakh per person)
You can avail these benefits by combining the benefits under Section 80C, Section 24(b), and Section 80EEA.
Loan Repayment Tax Advantages: A Practical Example
Imagine you are a tax payer in the 30% tax payment bracket.
Now consider this scenario –
- Loan Amount: ₹50 lakh
- Interest Rate: 8% per annum
- Tenure: 20 years
Here are the annual tax savings that you can get –
Interest Payment for Section 80C
Principal repayment deduction of ₹1.5 lakh results in tax savings of ₹45,000 annually.
Interest Payment for Section 24
Interest payment deduction of ₹2 lakh leads to tax savings of ₹60,000 annually.
Interest Payment for Section 80EEA
Additional deduction of ₹1.5 lakh provides tax savings of ₹45,000 annually.
Total potential annual tax savings: ₹1.5 lakh
Easy Tips to Get the Best Tax Benefits from Home Loans
If you want to maximise your tax benefits on home loans, there are a few tips that can be quite handy.
1. Choose a Joint Home Loan
If you can, get a loan with your spouse as a co-borrower. You may also choose someone who is a co-owner as a co-borrower. In this case, both co-borrowers can avail tax benefits individually. You can claim deductions on the principal payment under section 80C and on the interest payments under section 24(b). That should let you avail deductions from taxes of up to Rs 3 lakh on principal and up to Rs 4 lakhs on interest.
2. Have a Proper Documentation
Make sure to keep all your documents related to home loans properly organised. This can help you avail tax benefits with no hassles.
Some tips in this context include
- Interest certificates from the lender for an accurate interest claim
- Proof of principal repayments and stamped registration papers for Section 80C claims
- Receipts of stamp duty and registration charges, which can also be claimed under Section 80C in the year they are paid
3. Plan your Home Loan Prepayment Wisely
During the beginning of your loan tenure, a major part of your EMI goes to interest. You can make partial prepayments or higher EMIs to ensure that the amount of interest paid is more, and thus you can avail higher tax benefits under section 24(b).
4. Avail the First Time Home Buyer Benefits
If you are a first-time home buyer, check eligibility for additional deductions under Sections 80EE and 80EEA. These can provide extra relief of up to ₹50,000 (80EE) or up to ₹1.5 lakh (80EEA) on interest paid, on top of the normal Section 24 deductions.
5. Claim your Deductions Every Year
Tax benefits on home loans can be claimed every year during the loan tenure. Ensuring that you consistently claim your eligible deductions every financial year can lead to substantial cumulative savings.
By following these tips, home loan borrowers can optimise their tax benefits effectively, reducing their overall tax liability while managing their property investment wisely.
Conclusion
Availing of home loan tax benefits need not be a tough task. However, you should understand the right concepts for having a clear understanding of the system and avail the right benefits that are applicable to you.
We at Prime Meridian make sure that every home buyer who buys a flat or a living space in any of our construction projects avails the best tax benefits possible. Our advisors help you plan your home loans wisely – so that you can get the optimum benefits and save your taxes, while availing access to your dream home or office.
FAQ
1. Can I get tax benefits on a home loan for buying a house?
Yes, every home loan comes with the tax benefits for the borrower. These benefits can be availed under Section 80C, Section 24(b) and 80EE/80EEA of the Income Tax Act.
2. Do I get tax benefits on home loan processing fees?
No, the processing fee charged on your home loan is not liable for any sort of tax benefits. However, there are some provisions under Section 24(b), where the interest payment can get tax benefits under Section 2(28A).
3. Can NRIs get tax benefits on home loans in India?
Yes, NRIs can claim the same tax benefits as resident Indians on home loans for properties in India. NRIs are eligible for standard deductions, property tax deductions, and home loan interest deductions under applicable sections.
4. Is there a deadline to claim Section 80C benefits on principal repayment?
The deduction can be claimed throughout the loan tenure without any specific deadline, subject to the annual limit of ₹1.5 lakh. Benefits can be claimed even before taking possession of the property, as long as the loan is for purchasing or constructing a residential property.
5. Can I claim tax benefits if I take a loan from a friend or relative to buy a house?
Tax benefits under Section 80C for principal repayment are not available for loans taken from friends or relatives. However, interest payments on such loans can be claimed under Section 24(b), provided the loan is properly documented and the property construction is completed.
6. Can I claim both 80C and section 24?
Yes, you can claim deductions under both Section 80C (for principal repayment up to ₹1.5 lakh) and Section 24(b) (for interest payment up to ₹2 lakh for self-occupied properties) simultaneously. These are independent deductions that can be claimed together to maximise tax benefits.
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