In India, borrowers get certain income tax benefits when they pursue home loans from any lender. For instance, while repaying, the interest deduction on home loan may go up to Rs.50,000 per year under Section 80EE of the IT Act. One may take advantage of this rule until the borrowed amount has been paid out in full.
Keep reading to know the most talked-about tax benefits on reducing payable interest when someone has taken a home loan.
Income Tax Deduction Benefits on Home Loan Interest in 2024
Before discussing the tax exemption regulations on pursuing a home loan, it is important to understand the concept of affordable housing. Typically, affordable housing combines several accommodation units that are financially reasonable to people whose earnings are lower than the median household income.
Section 80EE allows for an extra tax deduction of up to Rs.50,000 on payable home loan interest per financial year. To claim this benefit, two conditions need to be satisfied:
- The loan amount must be under Rs.35 lakh
- The property value must not exceed Rs.50 lakh (affordable housing)
Furthermore, according to Section 24 of the Income Tax Act, buyers intending to purchase a property for staying can claim up to Rs.2 lakh deduction from the payable interests. For this, they must be willing to submit returns for the previous fiscal year. On the other hand, when the house is being rented out, the entire interest is waived as a deduction.
One may even enjoy home loan tax advantages on net payable interest amount while purchasing a second property. The regulations related to an interest on home loan deduction remain the same as they would have been for one’s first self-occupied property. This is an amendment that came into force after the Finance Ministry presented 2019’s Union Budget.
In this regard, if someone has sought a loan for an under-construction property but has not moved in yet, they can only claim for interest deductions on the amount spent after the construction has been finished.
Finally, one may receive additional tax advantages from a joint housing loan. In those cases, each borrower seeking the loan may individually claim deductions of up to Rs.2 lakh on interest payments. For amounts up to Rs.1.5 lakh per loan, tax can also be deducted from the principal. To be eligible for this deduction, all applicants must be co-owners of the property.
Procedure to claim home loan tax deduction
The entire process of claiming tax benefits on a home loan has been given below:
Step 1: Assess the claimable tax deduction. To find the estimated amount, one must understand their position as per the income tax slab.
Step 2: Before filing a claim the individuals must ensure that they either own the property or are registered as a co-borrower of the housing loan.
Step 3: Once the above conditions are met, one must submit their home loan interest certificate to their employer. This step is extremely crucial to adjust the TDS amount.
Step 4: If a person skips the above step they must file the tax return themselves.
Step 5: For self-employed people, there is no need to submit any income tax documents anywhere. But they should keep everything handy so that they may immediately provide proof if the IT department raises queries regarding the same.
Method to calculate interest deduction on home loan
The payable tax amount keeps on increasing in proportion to one’s annual earnings. Thus, to calculate the deductible income tax on home loan EMI manually, a person has to first determine their tax slab position. After accomplishing this step they must know the particulars of Section 24 of income tax and apply them to the payable income tax.
Instead of following the long-drawn route of determining the annual payable home loan EMI, an easier way would be to take the help of an income tax calculator. Once the amount is disclosed, completing online payment remarkably reduces the overall tax.
Terms and conditions to fulfil before claiming home loan tax benefits
To claim Section 80C tax deductions on home loan principal, stamp duty, and registration charges the owner(s) must fit into the below-mentioned criteria:
- They are not eligible to sell the concerned house within 5 years of occupying it.
- They need to claim income tax deductions on payable stamp duty only within the year during which the charges were paid.
However, the borrower must note that these deductions cannot be claimed throughout the loan tenor. A homeowner may apply for the aforesaid deductions under Section 80C only once.
In India, various lending institutions extend pre-approved offers to their customers on different financial products, including home loan and loan against property. Once you check your CIBIL score and find yourself to be eligible, you can quicken the loan application process by accepting these offers. Customers willing to check their pre-approved offers submit their names and contact details by visiting the lender’s website.
Any property owner or co-borrower needs to be aware of the various factors that lead to interest deductions on home loans. It not only reduces their income tax amount but also helps in selecting the ideal property as per the budget. In this regard, if anyone faces difficulty in assessing the payable home loan EMI after claiming all possible deductions they can use online calculators for more precise results.