Thanks to the easy home loans that banks and NBFC’s across India provide, taking a loan is one of the most popular methods of buying a house today. Realizing the popularity of housing loans, the Indian government, too, has time and again provided tax reliefs to home loan borrowers. Most home loans in India are eligible for tax deductions on the interest rate or the principal amount. Here are some of the main tax deduction rules attached to home loan interest rates as specified in the Income Tax Act.
Section 24
One of the main Sections dealing with tax deductions of home loan interest, the Section 24 of the Indian Income Tax Act allows borrowers to claim a tax deduction on loans taken for entirely constructed or under construction properties. To facilitate this deduction, the amount of home loan interest is subtracted from the income from house property. Here are the main features of Section 24:
- The maximum limit for claiming deductions under this section is capped at Rs. 2 lakhs. In the recent budget, however, proposals to increase this limit have been introduced.
- If you have taken a home loan for purchasing an under-construction property, you must ensure that the construction finishes within five years from the day of loan sanction. Only then will you be eligible for tax deductions under Section 24. If more than five years is necessary to construct the property, the maximum deduction allowed is Rs. 30,000.
- The maximum limit of 2 lakhs is valid for self-occupied houses. If the house you purchased with your home loan is rented to someone, there is no upper limit on the deductions.
Section 80EE
This section also deals with interest related tax benefits of home loans. It is valid if you apply for a home loan as an individual taxpayer. The main features of this section are:
- The upper limit for tax deductions under this section is Rs. 50,000, which is applicable over and above the limit of Rs. 2 lakhs, provided Section 24.
- Section 80EE only allows tax deductions if the principal amount of loan is 35 lakhs or less, and the property is worth Rs. 50 lakhs or less.
- This Section does not specify whether the house on which the loan is taken should be self-occupied or not.
Apart from these two sections, different sections of the Income Tax Act provide added benefits on principal amount payments. Some special deduction limits also exist for joint loan applicants.
Home loans, no matter how small or affordable, are a challenging financial commitment. As a borrower, after you determine your home loan eligibility and choose a lender, make detailed financial plans taking tax obligations into account. Use a home loan EMI calculator to make your planning more efficient. Use any home loan calculator to check the amount of interest you have to pay, calculate the taxes on it, and figure out how much of it you can claim deductions on.
Whenever you apply for a home loan online or offline, be careful of all the terms and conditions imposed by lenders so that you don’t end up with legal as well as financial troubles later.
