Exploring Housing Loan Tax Benefits: Maximising your Savings

Buying a house goes beyond just enjoying having an individual’s place. The Government of India offers various tax benefits on home loans to encourage citizens to invest in property under the Income Tax Act of 1961. 

These benefits not only reduce an individual’s tax bills but also assist in managing their cash flow more effectively. Homebuyers can go through this guide to learn about the housing loan tax benefits and other essential details. 

What are the different housing loan tax benefits one can enjoy?

Here is a list of various sections of the Income Tax Act under which individuals can enjoy housing loan tax benefits:

Section 24

Under this section, individuals can avail tax relief of up to Rs.2 lakh if they have a self-occupied property and have completed construction in 5 years. However, if the borrower fails to meet these eligibility criteria their limit will fall to Rs.30,000. Moreover, if they do not reside in the self-occupied property, they will not be able to claim any tax benefit.

Section 80 EE

Under this section, first-time house buyers can get tax deductions of Rs.50,000 on the interest paid on house loans. This deduction is in addition to the reductions provided under Section 24 and Section 80C.

Section 80 C

One can enjoy tax deductions of Rs.1.5 lakh on the principal amount of an individual’s house loan. Nevertheless, these home loan tax benefits remain reversed if the borrowers sell the loans in 5 years.

For joint home loan

When applying jointly for a home loan, both borrowers can save a significant amount on taxes if they are co-owners of the property and co-borrowers for the loan. Each borrower can enjoy tax rebates up to the maximum limit based on their share of property ownership.

For example, if one owner has a 30% share and the other has a 70% share, their tax deductions will be calculated accordingly. They can individually claim rebates of Rs.1.5 lakh on their loan, totalling a combined deduction of Rs.3 lakh under Section 80 C for principal repayment. Additionally, under Section 24 (b), they can collectively avail reductions of Rs.4 lakh for the interest amount.

For pre-construction property

Borrowers paying EMIs during the pre-construction or under-construction phase of a property, cannot get tax benefits on home loan interest until construction finishes. After completion, they can claim exemptions under Section 24 (b) for up to Rs.2 lakh, spread over five years in equal instalments. They can also get tax relief up to Rs.1.5 lakh on the principal amount under Section 80C.

How to claim income tax benefits on housing loans?

If an individual wants to know how to claim income tax benefits on housing loans, they can follow the below straightforward process:

• Calculate the income tax deduction amount.

• Provide the home loan interest certificate and EMI statement to the employer during the income tax proof submission with Form 12BB.
  

If forgotten during submission to the employer, individuals can still claim the tax benefit when filing their income tax return. Self-employed individuals do not need to submit these documents. One must keep proof of deductions for future reference, especially if questions arise from the Income Tax department.

Several lending institutions provide pre-approved loan offers to existing borrowers, depending on their credibility. These offers are applicable on loans against property, home loans, etc. Interested individuals can provide their basic details on the lender's website to check their pre-approved offers.

Since home loan repayment involves a substantial amount, tax benefits can help homebuyers immensely. Choosing the right loan amount and repayment period is crucial while availing housing loan benefits. It ensures a cost-effective loan with quick repayment and maximum tax savings.