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Maximising Tax Benefits with Housing Loan Interest Deduction

One of the merits of a home loan is the potential for sizeable tax savings and capacity to reduce debt. But first, individuals need to choose the most favourable financing option, which begins with a cheaper housing loan interest rate. However, to maximise this advantage, one must meet the home loan eligibility criteria set by lenders and support their loan application with valid up-to-date documents required for home loans. A prudent housing loan can safeguard economic stability and also assist borrowers in managing their debt resourcefully. 

 

Housing Loan Tax Benefits

As per provisions in the Income Tax Act, eligible house loan borrowers can claim the following deductions annually, on both the principal and interest components of their EMIs, helping them lower their tax liability:

 

Provisions 

Applicable Deductions 

Exemption Limit

Conditions

Section 24 (b) Interest Rs. 2 lakh The loan must be utilised for building purposes, which should be completed within five years
Section 80 C Principal Rs. 1.5 lakh The property cannot be sold within 5 years 
Section 80 EE Interest Rs. 50,000 The loan amount should be less than Rs. 35 lakh while the property value cannot cross Rs. 50 lakh
Section 80 C Stamp duty Rs. 1.5 lakh Can be claimed only in the year of incurring the expenses
Section 80 EEA Interest Rs. 1.5 lakh The stamp value of the property should not exceed Rs. 45 lakh. Individuals cannot claim Section 80 EE deductions  

 

Provisions for Housing Loan Interest Deduction 

In order to maximise tax savings, one should try to claim the applicable housing loan interest deductions such as:

Tax Concessions on Interest Paid

Borrowers can expect reductions on home loan interest rate paid under Section 24 (b). The property must be constructed or acquired within five years of obtaining the loan to receive a maximum rebate of Rs. 2 lakh; if not, the limit may drop to Rs. 30,000. Any losses arising from the property may be offset against other income heads with the remaining amount carried forward in subsequent years.

Pre-Construction Interest Deduction

Pre-construction interest or interest paid on housing loans serviced during the building construction phase can be claimed upon project completion in five equal instalments. You may receive exemptions up to Rs. 2 lakh for a self-occupied house; while in case of a property placed on rent, the entire interest is tax deductible.

Section 80 EE Tax Incentives

Apart from the interest relief under Section 24 (b), Section 80 EE suggests extra reductions of Rs. 50,000 on loan interest for first-time home buyers. The property value should be Rs. 50 lakh or less while the loan amount must not exceed Rs. 35 lakh. It applies to loans sanctioned between 1st April 2016 and 31st March 2017. 

Tax Reductions Under Section 80 EEA

Section 80 EEA, a later provision in the Income Tax Act, offers tax deductions on interest paid for a house loan up to Rs. 1.5 lakh. Borrowers can avail of this concession if the loan has been sanctioned between 1st April 2019 to 31st March 2022. The stamp value of the property should be less than Rs. 45 lakh and one must not hold any other property in their name at the time of loan approval. Further, if you claim the exemptions available under Section 80 EE, you cannot be deemed eligible for Section 80 EEA incentives.

Tax Relief for a Joint Home Loan

Property owners who take a loan jointly can enjoy combined exemptions raising their tax savings. Each borrower is entitled to individual tax rebates under Section 80 C of Rs. 1.5 lakh on the principal repayment and Section 24 (b) concessions of Rs. 2 lakh on the interest portion of their EMIs. 

 

Tax Exemption on House Loan Principal Repayment

In addition to the housing loan interest deductions available under the Income Tax Act, borrowers can secure reductions on the principal repayment of their loan. They can also recover stamp duty and registration fees under Section 80 C, which offers an overall exemption limit of Rs. 1.5 lakh.

Summing Up

Borrowers must be aware of the eligibility requirements to receive suitable tax incentives. However, the new tax regime does not permit deductions under Sections 24 (b), 80 C, 80 EE and 80 EEA. To optimise tax savings on housing loans, one should consider all the variables including loan amount, tenor and interest rates. Moreover, it would be wise to access a home loan calculator to understand your exact long-term liability and a home loan eligibility calculator to evaluate your eligibility. Together, these tools enable you to assess credit viability within minutes. 

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