Buying a home is one of the biggest financial decisions for most people, and when financed through a home loan, it can also help reduce your tax liability. The Income Tax Act of India provides certain benefits on both the principal and interest components of a home loan. Here’s a simple breakdown of what every homebuyer should know.
Key Tax Benefits
1. Principal Repayment – Section 80C
The principal portion of your home loan EMI qualifies for deduction under Section 80C. The maximum limit under this section is ₹1.5 lakh per year, shared with other eligible investments like PF, ELSS, and life insurance premiums. This benefit is available only after the property is constructed or purchased.
2. Interest on Home Loan – Section 24(b)
The interest you pay on your home loan is deductible under Section 24(b). For a self-occupied property, the deduction is capped at ₹2 lakh per year. If the property is rented out, the interest deduction may be higher, though limits can apply when setting off losses.
3. Additional Benefits for Certain Buyers
Special provisions such as Section 80EE and Section 80EEA have historically provided extra deductions for first-time or affordable housing buyers, subject to conditions like property value limits and loan sanction dates.
4. Joint Home Loans
If you take a joint home loan and are a co-owner of the property, each borrower can claim deductions individually, subject to the overall limits under the law. This can help families optimize their tax savings.
5. Carry Forward of Loss from House Property
If the interest deduction creates a loss under “Income from House Property,” that loss may be set off against other income up to a certain limit, and unadjusted loss can be carried forward for up to eight years.
Practical Tips
Always keep the lender’s interest certificate and loan statements handy.
Ensure your name is on both the loan and the property documents to claim benefits.
Compare the old tax regime (with deductions) and the new regime (with lower tax rates but fewer deductions) before filing.
Consult a qualified tax professional for complex cases like multiple properties or joint ownership.
Disclaimer
This blog is for informational purposes only. Tax rules change from time to time, and applicability varies by individual circumstances. Always confirm current provisions and seek professional advice before making financial or tax decisions.
