Home loans help borrowers buy their dream homes. However, a home loan is a huge undertaking. When borrowers avail of a home loan, a considerable part of their income goes into covering EMIs. Therefore, homebuyers and home loan borrowers must apprise themselves of home loan tax benefits as these benefits can help one save a considerable amount of money over the tenor of the loan.

Housing Loan Tax Benefits: Understanding the Financial Advantages

Home loans are repaid through EMIs. Lenders divide every EMI into two components. The first or the majority component is directed towards the repayment of the interest component. The second or the minority component goes towards covering the principal component of the loan. After a lender has recovered most of the interest, lenders increase the principal component of an individual’s home loan EMIs. Let us now look at the housing loan tax benefits available on both the components of a home loan EMI. 

Housing Loan Tax Benefits Under Section 80C 

Section 80C of the Income Tax Act deals with several different tax-saving instruments, such as National Saving Scheme, Public Provident Fund, ULIP, equity-linked saving schemes, payments made towards life insurance premiums, etc. Contributions made towards principal component repayment of a home loan are also covered under Section 80C. The maximum limit permissible or the maximum housing loan tax benefit available under Section 80C is Rs.1.5 Lakh. Further, only individual borrowers and Hindu Undivided Families (HUFs) and not companies, LLPs and corporates can claim tax deductions under Section 80C. Home loan borrowers must also know that if a homebuyer sells their home within 5 years of buying it, the home loan tax benefits they had claimed under Section 80C get reversed. In other words, tax benefits under Section 80C are available only if one does not sell their home within 5 years of buying it and availing of a home loan to facilitate its purchase. Further, home loan borrowers must also know that one can claim tax benefits under Section 80C only after the construction of the property is complete. No housing loan tax benefits can be claimed under Section 80C while the construction of the home is still going on. 

Housing Loan Tax Benefits Under Section 24b 

Unlike Section 80C of the Income Tax Act, which deals with several different tax-saving instruments, Section 24b of the Income Tax Act deals only with payments made towards the repayment of the interest component of a home loan. Under this Section, home loan borrowers can claim tax benefits up to a maximum of Rs.2 Lakh on payments made towards the interest component repayment of the home loan. If a homebuyer has two homes and has availed of two home loans, they can claim housing loan tax benefits under Section 24b on both home loans. However, the maximum deduction that one can claim is Rs.2 Lakh. In the case of rent-out properties, however, one can claim a deduction on the entire interest component of the loan. Further, home loan borrowers must also keep in mind that if they have availed of a home loan to buy an under-construction property, they can claim tax benefits under Section 24b only after the construction of the property is complete. They can claim this deduction in five equal instalments spread over 5 years. However, if for some reason, the construction of the home does not get complete within 5 years of availing of the loan, the maximum limit permissible under Section 24b automatically comes down to Rs.30,000 a month.

Housing Loan Tax Benefits Under Section 80EE and Section 80EEA 

Over and above the tax benefits that home loan borrowers can claim on the interest component of their home loan under Section 24b, home loan borrowers can claim an additional Rs.50,000 under Section 80EE and Rs.1,50,000 under Section 80EEA provided they meet certain conditions. These conditions are discussed below. 

Conditions to be Met to Claim Housing Loan Tax Benefits Under Section 80EE 

1. First-time homebuyers who had availed of a loan between 2013 and 2017 can claim home loan tax benefits under Section 80EE. 
2. The value of the property bought with the loan money must not exceed Rs.50 Lakh and the value of the home loan must have been under Rs.35 Lakh. 
3. Housing loan tax benefits under Section 80EE are available only for residential properties and not commercial properties. 

Conditions to be Met to Claim Housing Loan Tax Benefits Under Section 80EEA 

1. First-time homebuyers who had availed of a home loan between 2019 and 2022 can claim home loan tax benefits under Section 80EEA. 
2. One can claim housing loan tax benefit under this section only if the stamp value of the property at the time of availing of the loan was no more than Rs.40 Lakh. 
3. The carpet area of the property must not be more than 645 square feet if located in a metro city and no more than 968 square feet if located in one of the non-metro cities.

Final Words 

A home loan can help home loan borrowers save a considerable amount of money in taxes each year. If you are not sure how you can claim tax benefits under various sections of the Income Tad Act, you must talk to a tax expert or have them file your taxes for you. This will most certainly work in your favour.