Owning a House No Longer a Dream Now! Know Tax Exemptions on Your Home Loan

April 2019 had a home loan growth of 14.9%. This number went up by significant numbers to reach 18.6% after new income tax reforms. 

While the Government of India has been promoting housing for all Indians over the past few years, tax exemptions are one of the most crucial factors which have contributed to the growth of home loans.

To avail of affordable housing, loan borrowers should understand all the tax exemptions they are entitled to. Effectively availing all available benefits can offer immense savings for the applicants. 

Vitally, it is also important to understand which benefits are applicable to borrowers. Under the Income Tax Act, there are 3 sections that offer home loan tax exemptions to home loan borrowers. These sections are discussed underneath in detail.

Section 24(b)

This section of the Income Tax Act offers exemptions on the interest paid on a home loan. The salient features of this section are listed below –

  • The total tax-deductible amount can go up to Rs.2 lakh.
  • In the case of joint-borrowers, both individuals can avail income tax exemptions under this section. 
  • In case the property is let out, there is no limit to the exemptions.

It is important for borrowers to remember a few things to avail this tax benefit – the house must be completed within 5 years of availing the loan. In case an individual misses this date, they are only eligible for a claim up to Rs.30,000.

Section 80C

Of everything one needs to know about saving tax when taking a home loan, Section 80C is crucial since it offers exemptions on the principal amount. The essential features of this exemption are discussed hence –

  • This exemption can be claimed on the principal amount up to Rs.1.5 lakh.
  • The deduction can only be claimed after completion of the house purchase or construction.
  • The house cannot be sold within 5 years of its construction or purchase. In case of such a sale, the amount will be added on the income next year and tax will be deducted on this higher sum.
  • A major contributor towards affordable housing, in case of joint-borrowing this section offers exemptions to both borrowers.

Homebuyers can even claim their expenses on stamp duty and registration charges as a part of their exemption under this section.

Section 80EEA

This benefit is only applicable to borrowers who are first-time home buyers. With several borrowers opting to buy or build their own house with the benefits offered under Pradhan Mantri Awas Yojana, this section especially looks to help the financially backward. The basic features offered under this section are mentioned below –

  • A claim on a sum up to Rs.1.5 lakh is offered.
  • The stamp value of the asset should be less than Rs.45 lakh.
  • There are a few specific carpet area restrictions of the property, depending on the city where it is being bought or constructed.
  • In the case of joint ownership, both individuals are eligible to make the claim.

Application Procedure

There are two ways in which a borrower can avail the tax benefits –

  1. They can file for tax returns themselves. In that case, they must download relevant forms and file for the return. 
  2. A much more convenient method is that of submitting relevant documents on the home loan availed by the government housing scheme. This ensures the taxes are adjusted at the source. 

In the case of self-employed individuals, it is essential to keep all relevant documents at hand for the Income Tax Department.

Where to avail a home loan from?

Housing finance companies are the most preferred option for individuals who seek home loans.

While availing affordable housing with PMAY, it is important for borrowers to plan their repayment as well. This ensures they do not incur any additional charges due to late payment of EMI. It is best to use an EMI calculator for a home loan to calculate the exact amount they have to pay every month.

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