Last Updated on Feb 23, 2022 by Manonmayi

The provisions of the Income Tax Act of 1961 state that taking a home loan makes you eligible for a tax deduction. The Indian government has always been inclined to encourage citizens into buying more property. 

Housing loans are always there to help you get your own house, but it can be a bit risky and expensive to take out such a loan. But on the bright side, there are several tax benefits you get with such loans, and they can help you save some money each year. 

Here are a few ways to make the most of these home loan tax benefits. 

This article covers:

Interest on housing loan deduction 

A home loan is generally taken for two reasons. One is to purchase a house, and the other is to construct/renovate the house. If your loan is for construction, then note that the house must be completed within five years of the end of the financial year when the loan was taken. 

When you repay a home loan through EMIs, there are basically 2 components that you are addressing – the first is the principal repayment, and the second is the interest. Under Section 24(B) of the Income Tax Act of 1961, you can claim up to Rs. 2 lakh deduction on the interest amount. This is claimed as a deduction from your total income. This is valid for self-occupied houses and also for houses that are given out for rent. But you can only claim this deduction from the year in which the construction of the property is completed. Or, if you buy an already-built house, you can claim this deduction from the year of occupation. 

Deduction for under-construction property

As we mentioned before, under Section 24(B), the deduction on interest on your EMI can only be claimed once the construction of your property is finished. But usually, people draw a loan before starting the house’s construction. Then what about the time of the construction? Will you get any deduction for the EMI you have paid back during that time? The answer is yes. But the highest amount that can be deducted still remains Rs. 2 lakh. 

For example, assume you bought a property and paid about Rs. 10,000 per month in interest for two years while it was under construction. Now after the construction is completed, you can start claiming your pre-construction interest of about Rs. 2.4 lakh (Rs.10,000 x 24 mth). 

But only after the construction is finished will you get the deduction in five instalments of an equal amount from the year that the construction is completed. Remember that the maximum amount of deduction you can get under Section 24(B) of the Income Tax Act is Rs. 2 lakh, including both the pre-construction interest and the current year interest. 

Principal amount tax deductions 

Under Section 80C of the Income Tax Act, you can claim a deduction for the principal amount of the EMI. You can claim up to Rs. 1.5 lakh in the principal amount deduction. But there is a catch. If you want to claim this deduction, you cannot sell the property within five years of claiming possession of it. In which case, the deduction claimed earlier will be added to your income tax at the end of the financial year in which you decide to sell the property. If you take a joint home loan with a family member, your tax benefits increase as both of you will be eligible for interest deduction of up to Rs. 2 lakh under Section 24(B) and under Section 80C for up to Rs. 1.5 lakh. 

Stamp duty and registration fees deduction 

We have already talked about the deduction you can get on the principal amount of the EMI. But homeowners also shell money on stamp duty and registration fees to buy a property or get a home loan. 

But thankfully, you can also claim back some of these fees under Section 80C of the Income Tax Act. However, this will be capped at a maximum of Rs. 1.5 lakh, as mentioned before. Other than all of these deductions, there is also an additional deduction that you may get under Section 80EE and section 80EEA. We are going to talk about them in detail below.

80EE Deduction

This additional tax deduction is only valid for people that do not own a house already. Meaning it is only for first-time homeowners. Under section 80EE of the Income Tax Act, first-time homebuyers can get a deduction of up to Rs. 50,000. But there are a few conditions that have to be met in order for the buyers to be eligible for this deduction. 

  1. Firstly, as mentioned before, the individual who takes the loan must not have previously owned a home. 
  2. To be eligible for this deduction, the value of the house being bought must be less than Rs. 50 lakh, and the amount taken out as a home loan should be less than Rs. 35 lakh.

80EEA Deduction 

This additional deduction was introduced in 2019 to encourage more individuals to own a house. Under Section 80EEA of the Income Tax Act, first-time homebuyers who take home loans can get a deduction of a maximum of Rs. 1.5 lakh. But they have to meet a few conditions to be eligible for this deduction. 

  1. The property has to have a stamp value of less than Rs. 45 lakh.
  2. For eligibility, the loan has to be sanctioned from 1 April 2019 – 31 March 2022, which was extended from the original 31 March 2021. 
  3. Just like Section 80EE, you cannot previously own any property to be eligible to get this deduction. 
  4. If you can claim a deduction under Section 80EE, you do not qualify for deduction under 80EEA. 

Note: The deduction of 80EE is valid only for people who have taken their loans before 31 March 2017.

Conclusion

People are often scared of getting home loans as they can be cumbersome to manage and repay. But if you keep yourself aware and updated on all the tax benefits and deductions you can get from a home loan; you can save a lot of money and also own a home of your own. Make sure to read all about these deductions in detail and talk to the ones that sanction your home loan to make sure you can avail all the home loan tax deductions you are eligible for.

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