loans will increase significantly in the coming years. Certain reports claim that the housing loan market is expected to grow at a CAGR of 24.1% in the coming years. Various home loan benefits will further increase this demand and one of the key home loan benefits that will push the demand for housing finance is the home loan tax benefits.
Home Loan Tax Benefits You Must be Familiar With
Home Loan Interest Deductions Under Section 24b
Different sections of the Income Tax Act deal with different tax-saving instruments. Section 24b of this Act deals solely with the home loan tax benefits that one can claim through the interest that they have paid on their home loan in the previous year. The maximum amount that one can claim under this section is Rs.2 Lakh. Even if you are repaying more than a single home loan, the maximum home loan benefits you can claim under Section 24 of the Income Tax Act cannot go beyond Rs.2 Lakh. Here are a few things that home loan borrowers must know about claiming home loan tax benefit under this section of the ITA alongside a few simple tips on what borrowers can do to maximize savings under this section of the ITA.
- The limit mentioned under Section 24 is applicable only if one buys a home for investment purposes or occupies it. If you earn income from the home, there is no maximum limit on how much home loan benefits you can claim under this section of the Income Tax Act. In this case, one can claim home loan tax exemption on the entire amount paid as interest towards one’s home loan.
- In the case of joint home loans, all the borrowers can claim home loan tax benefits separately under Section 24(b) of the Income Tax Act. Thus, a husband and wife who have availed of a joint home loan can maximize tax savings by claiming tax benefits separately under this section of the Income Tax Act.
- If you have invested in an under-construction property, you can claim a home loan interest deduction on the interest component of the home loan after the construction on the property is complete. However, home loan tax exemption on pre-construction and post-construction interest cannot exceed Rs.2 Lakh in any given financial year. More importantly, if the construction on the property is not complete within 5 years, the maximum home loan tax exemption one can claim under this section comes down to Rs.30,000 a year. Home loan applicants must therefore always invest in properties by reputed builders, who are known to finish and deliver projects within the selected time frame.
Home Loan Tax Exemption on Principal Components
Section 80C of the Income Tax Act deals with several different tax benefits, such as the National Pension Scheme, ELSS funds, PPF, ULIPs, National Saving Certificate, etc.
One can claim home loan tax benefits on payments made towards the repayment of the principal component of the loan under Section 80C of the Income Tax Act. The maximum limit permissible is Rs.1.5 Lakh, irrespective of the number of home loans you are repaying. Here is how you can maximize tax savings under this section of the Income Tax Act.
Two people who have availed of a joint home loan can claim home loan tax benefits separately under Section 80C of the Income Tax Act. This is one of the best ways to maximize savings.
If one sells their property within five years of buying it, the maximum tax benefit that they had claimed under Section 80C automatically gets reversed. Further, it is then counted as income and one has to therefore pay interest on it. So, individuals who have bought a home on a home loan must never sell their home within 5 years of buying it.
Over and above the things mentioned above, home loan borrowers who have availed of a home loan to buy a residential property, are first-time homeowners who can further minimize tax savings if they are eligible to claim home loan tax benefits under Section 80EE and Section 80EEA. In short, a home loan can make one eligible for several different home loan tax benefits. Loan borrowers must have a clear understanding of the tax benefits available to them and they must make the best use of these benefits.