The housing loan market is currently growing at a CAGR of 22% per annum and this growth is expected to continue in the coming years. In fact, if reports and surveys are to be believed the home loan market will gain further momentum in the coming years. Several factors can be attributed to this success. To start with, residential properties have become massively expensive over the last few years, making it nearly impossible for a middle-class person to buy a home only with their savings. Further, home loan tax benefits allow homebuyers to reduce their tax liability by significant margins, in turn allowing them to save more money each year while also moving in the direction of their dream of complete home ownership.
Each EMI that one pays towards their home loan is broken down into two parts: the first part is directed towards the repayment of the interest component of one’s home loan and the second part goes towards the recovery of the principal component. Housing loan tax deductions are available on both the principal and interest components of a home loan. Tax deductions on principal components can be claimed under Section 80C, with the upper limit applicable set at Rs.1.5 Lakh, irrespective of the number of home loans a person has. Housing loan tax benefits on the interest component of the loan can be claimed under Section 24b, Section 80EE and Section 80EEA. In this article, we discuss housing loan interest deduction in detail.
Housing Loan Interest Deduction as Mentioned Under Section 24b
Section 24b of the Income Tax Act clearly states that home loan borrowers can claim home loan tax benefits on the payment they have made towards the repayment of the interest component of their home loan up to a maximum of Rs.2 Lakh. This limit remains applicable even if a borrower is repaying more than a single home loan. However, this upper ceiling of Rs.2 Lakh is applicable only for self-occupied properties. No upper limit is applicable in the case of rented-out properties. Further, the maximum amount of Rs.2 Lakh can be claimed as a home loan interest deduction in the case of under-construction properties only if the construction on the property is complete within five years of the loan borrower availing of the home loan. If the construction on the property is not complete, the maximum limit applicable automatically reduces to Rs.30,000 a year.
Borrowers must also know that they can claim home loan tax benefits on payments made towards the repayment of the interest component of their home finance during the pre-construction phase in five equal installments spread across five years after the construction on the property is complete. However, borrowers must know that the upper limit of Rs.2 Lakh applies to both pre-construction and post-construction interest. Further, joint home loan borrowers can maximize savings under this section by claiming housing loan interest deductions separately under this section.
Housing Loan Interest Deduction Under Section 80EE and Section 80EEA
Section 80EE and Section 80EEA provide additional home loan tax benefits to first-time homebuyers who have invested in affordable housing. The maximum limit permissible under Section 80EE is Rs.50,000 and under Section 80EEA is Rs.1.5 Lakh.
Eligibility Criteria for Claiming Housing Loan Tax Benefits Under Section 80EE
- The value of the property bought with the loan money must be Rs.50 Lakh or less and the home loan amount availed of must not be more than Rs.35 Lakh.
- The loan borrower must have availed of the home loan between April 1, 2016 and March 31, 2017.
- The loan applicant must have no other property under their name if they wish to claim a housing loan interest deduction under this section of the Income Tax Act.
Eligibility Criteria for Claiming Home Loan Tax Benefits Under Section 80EEA
Home loan borrowers can claim home loan tax benefits under Section 80EEA if they meet the following eligibility requirements:
- The stamp duty value of the property purchased with the loan money must not be more than Rs.40 Lakh.
- The loan applicant must have borrowed the loan between 2019 and 2021.
- The loan applicant must have had no other property in their name at the time of applying for the loan.
If you meet the above-mentioned criteria, you can further increase the tax benefit on a home loan by claiming benefits under Section 80EE or Section 80EEA. One cannot claim tax benefits simultaneously under both sections of the Income Tax Act.
In conclusion, the Government of India allows homebuyers to save substantially through the various housing loan interest deductions available to them. If you have availed of home finance, you must read extensively about these different home loan tax benefits and make sure that you are availing of these benefits that have been made available to you.
