Income Tax Exemption on Home Loan – Don’t miss these 3 tax benefits

Most Indians, use home loans as the tax saving option to optimise their taxes. In this article, let’s understand how to claim income tax exemption on home loans to maximize your tax savings. 

Income tax exemption on housing loans can be claimed under various sections of the Income Tax Act. To understand the topic easily, let’s divide our home loan components into Principal, Interest & Stamp duty and Registration fee.

Now let’s see in which sections you can claim these respective components.

Principal component

First, if you look at the principal component of the housing loan, you can claim up to Rs. 1.5 lakh under sec 80C. This limit includes various other investment options under sec 80C like LIC, PPF & ELSS mutual funds etc.

So if you are planning a home loan, plan your other investments under 80C accordingly. Because the maximum deduction under sec 80C for all investments together is Rs. 1.5 lakh.

Interest component

Next comes the interest component of the home loan. Interest component can be claimed under three different sections of the income tax. 

They are Section 24(b), section 80EE and section 80EEA. Sec 24(b) can be claimed by all, whereas sec 80EE and 80EEA deductions are only for first-time home buyers.

Sec 24(b)

So first let’s talk about section 24(b). If you have taken any loan for the construction or purchase of a residential house property, then the interest component in EMI can be claimed under section 24(b). 

For self-occupied property, one can claim up to a maximum of 2 lakh interest. And for let-out property, there are NO limits. An important point to remember is, that if you have taken a loan for house property construction, the construction should be completed within 5 years from the end of the financial year of taking the loan. Otherwise, the maximum deduction is limited to Rs. 30,000.

Another important point is under section 24(b) if you want to claim interest, house property construction or acquisition should be completed. So if you are taking under-construction property, such interest portion paid during the period of construction can be claimed once the property is occupied.

Soon after the construction is completed, 1/5th of the pre-construction period interest can be claimed every year. But do remember, together pre-construction period interest plus current year interest maximum deduction is Rs. 2 lakh, for let out property. For self-occupied property, there are NO limits. This is about sec 24(b).

Sec 80EE

Next Section, Section 80EE. In this section also, you can claim any interest payable on a loan taken for the construction of a house property. But to claim interest under this section, some conditions must be satisfied.

The conditions are:

1. The loan should be from a Bank or Financial Institution only. 
2. The sanctioned loan should not be more than Rs. 35 lakh and
3. The value of the house property is not more than Rs. 50 lakh
4. The loan so sanctioned should be sanctioned in FY 16-17 itself and
5. One should not have any residential property in their name on the date of sanction of the loan.

Upon satisfying all the above conditions, a deduction of Rs. 50,000 can be claimed under this section.

The point to remember is, the deduction is not limited to FY 16-17 only. As long as the interest is paid by satisfying the above-mentioned conditions, then you can claim the deduction every year from AY 2017-18 onwards.

Once the interest is claimed u/s 24(b), you may claim the unclaimed portion of the interest under this section. Remember same interest should not be claimed in both sections.

Also read: How to save capital gain tax on the sale of property

Sec 80EEA

Next section, Section 80EEA. This is also almost similar to sec 80EE but there is a slight difference in the conditions to be satisfied.

Conditions are:

1. The loan should be from a Bank or Financial institution.
2. And the value of the property is not more than Rs. 45 lakh. But there is no condition for sanctioned loan amount unlike 80EE. 
3. The loan so sanctioned should be between FY 19-20 and FY 21-22.
4. One should not have any residential property in their name on the date of sanction of loan.

Upon satisfying the above conditions, one can claim a deduction of up to Rs. 1.5 lakh interest under this section. If a deduction is claimed under this section, then one should not claim a deduction for the same interest again in sec 80EE.

Do remember, under the New tax scheme sec 80EE and sec 80EEA deductions are NOT available. 

Stamp duty & Registration fee

The next component is Stamp duty and Registration charges.

If you have incurred any charges related to your residential House property, these charges are to be claimed under section 80C. As mentioned earlier, the maximum deduction you get under 80C is Rs. 1.5 lakh, including all other investment options plus principal component plus stamp duty and registration fees.

Conclusion

In this way, plan all your home loan components for effective tax planning to save your tax outgo. Also, make sure not to invest excessively in sec 80C which may not give either the tax benefit or the desired return.

Hope you have enjoyed this article. Thank you for your time.