Home Loan Tax Benefits

Acquiring a home loan can assist you to save tax as per the provisions of the Income Tax Act 1961. With every passing year, the home loan tax benefit increases to provide the borrower with a relief.

A home loan can turn out to be an expensive affair if not planned efficiently. But, with the various income tax benefit on the home loan, there are still opportunities left for the borrower to enjoy their new home as well as save money year on year. Discussed below are the home loan tax benefit 2018 – 2019 assessment year that provides income tax benefit on home loan interest rates, benefits for first-time owners, and so on.   

Now let’s have a look at the Income-tax benefits of a home loan.

Home Loan Tax Benefit under Section 24 towards Interest Payment: This section deals with yearly tax deductions related to the interest payable on your home loan.

• A maximum deduction of Rs 2 lakh can be claimed if your property is self-occupied.

• Property let out in rent; you can claim any amount you have mostly paid as interest. There is no limit.

• If you are a co-borrower and co-owner of the house, each one can claim up to the maximum deductible amount under this section.

• A Rs 2 lakh deduction is applicable only if the construction of the property is completed within 5 years. Otherwise, you can claim only up to Rs 30,000.

Home Loan Tax Benefit under Section 80 C for Principal Repayments –This section deals with the home loan principal tax benefit under Section 80 C.

• Rs 1.5 lakh can be claimed year on year as deductions for self-occupied as well as properties that are rented out.

• Concerning construction of the property, you can claim this deduction only after the completion of the structure. If you happen to sell the property within 5 years after possession, any tax deductions claimed will be reversed for that specific year of the sale, and the amount will be added to your income for that year.

• Under this section stamp duty and registration fees paid for your property can be claimed.
Home Loan Tax Benefit for First Time Home Buyers under Section 80EE (This is applicable only for loans sanctioned between 1st April 2016 and 31st March 2017):

• The value of the property must be less than Rs 50 lakh.

• You cannot own any other property.

• The sanctioned home loan amount must be less than Rs 35 lakh.

• Additional interest of up to Rs 50,000 can be claimed year on year until the repayment of the loan.

Home Loan Tax Benefit for Joint Owners :

A joint home loan enables each holder to claim deductions for the interest up to Rs 2 lakh (each) and principal repayment under Section 80C of up to Rs 1.5 lakh each in their tax returns. To avail this home loan benefit, they should be co-owners of the property taken on loan.

Home Loan Tax Benefits If You Own a Second Property

If you own more than one self- occupied property, then only one of them will be classified as self- occupied. Tax is applicable based on notional rent for the other property. However, as per the finance budget of 2019, a proposal has been furnished that the second self-occupied home is claimed as self-occupied instead of it being deemed to be rented. This prevents the owner from the incidence of pay tax based on notional rent and saving money.

Home Loan Tax Benefit and Home Rent Allowance (HRA)

If you have taken a home loan, however, you continue to rent another house where you currently reside. Under the home loan tax benefits, you can make two claims. HRA can only be claimed if you have rented the house under your name. The following are a few points to be considered for HRA when you file your taxes. :

• The actual HRA compensation that you receive from your employer.
• The city in which the property is located.
• The actual value of the rent minus 10% of your salary. This percentage may be subject to change

Now that the home loan interest tax benefit has been clarified for the borrower when they take a home loan or a property loan. One should make sure that this information is consumed to their advantage to save money and pay as little as possible towards tax.