Buying a home has several advantages. To start with, when you invest in a home, you are saved from having to pay rental costs each month. You pay EMIs instead but these EMIs go towards building an asset that belongs to you. Further, the real estate sector has delivered stellar returns over the last few decades and the trend is likely to continue over the next few years. Thus, when you buy your own home, you know your investment will fetch you a great return. Lastly, if you have taken a home loan, know that your loan entitles you to home loan tax deductions that can help you save big on your taxes each year.
The Income Tax Act deals with home loan tax deduction. In this article, we dive deep into the various sections of the Income Tax Act, such as Section 80C and Section 24b, and explain how to claim income tax deductions each year.
Home Loan Tax Deductions as Specified Under Section 80C
Home loans are repaid in the form of EMIs and EMIs constitute a principal component and an interest component and the income tax department permits income tax deductions on both the components of a home loan. Section 80C of the Income Tax Act deals with income tax deductions available on the principal component of a home loan. This section of the Income Tax Act states that borrowers can claim tax deductions up to a maximum of Rs.1.5 Lakh on payments made towards the repayment of the principal component of a home loan. In the case of a joint home loan taken by a couple, both the borrowers can claim income tax benefits separately under this section of the Income Tax Act.
Home Loan Tax Deductions Specified Under Section 24b
Section 24b of the Income Tax Act deals with home loan tax deductions available on the interest component of the home loan. This section states that homebuyers who are repaying a home loan can claim income tax deductions on payments made towards the interest component repayment of the home loan. The maximum deduction available under this section of the home loan is Rs.2 Lakh and as in the case of income tax deductions permitted under Section 80C, joint home loan borrowers can claim income tax deductions separately under this section.
Home Loan Tax Deductions Available Under Section 80EE and Section 80EEA of the Income Tax Act
Section 80EE of the Income Tax Act allows home loan borrowers to claim an additional income tax benefit of Rs.50,000 provided they meet certain conditions. To start with, to be eligible for these income tax deductions, the borrower must have availed of a loan between April 1, 2016 and March 31, 2017. Further, the value of the loan should not exceed Rs.35 Lakh and the value of the property must not exceed Rs.50 Lakh. Home loan borrowers must also keep in mind that home loan income tax deductions mentioned under Section 80EE of the Income Tax Act are only available to first-time homebuyers.
Another Section of the Income Tax Act provides income tax relief to first-time homebuyers and it is the Section 80EEA of the Income Tax Act. This section allows first-time homebuyers who had availed of a home loan between April 1, 2019 and March 31, 2020 to claim an additional income tax deduction up to Rs.1.5 Lakh on payments made towards the interest component repayment of the home loan. However, one can claim tax deductions under this section only if the value of the property they have bought with the loan money does not exceed Rs.45 Lakh.
How Can One Claim Home Loan Income Tax Deductions?
Claiming home loan tax deductions is quite easy. If you are employed, all you must do is submit all home loan-related documents to your employer and they will figure out your tax liability for the year and tax savings facilitated by the home loan and adjust your TDS accordingly. However, if you are unemployed or are a freelancer, collect all the required documents and keep them ready with you. You will need to add them to your application at the time of filing of taxes at the end of the year.
Final Words
If you have availed of a home loan to buy a home, know that you are entitled to home loan tax benefits. There are many different tax benefits available to borrowers. Having a clear understanding of these various benefits allows home loan borrowers to save a lot of money in the form of taxes each year. So, read as much as you can and keep yourself well-informed.