Home Loan Tax Benefits You Need To Know (2021)
By Pratik Balasaria

Did you know that you can avail home loan tax benefits on your equated monthly installments (EMIs) if you have an ongoing home loan or have taken a recent home loan? Homebuyers can still opt for the old tax regime in the current financial year and also avail tax exemptions such as HRA and various documents under sections 80C and 80D. Additionally, homebuyers can also choose the new tax regime that offers a tax rate without tax exemptions and deductions. Remember, there are additional home loan tax benefits in the previous budget that are also applicable for FY 2020-21. 

What are HRA and Tax Exemptions in Home Loan Tax Benefits

Home Loan Tax Benefits

If you have availed a home loan, but are also staying in a rented house, you can claim both—tax benefits on home loan as well as House Rent Allowance deduction. However, remember, you can claim the HRA benefit only if you are living in a rented house. You can claim HRA on the following conditions:

  • 50% of your salary for metro cities and 40% for non-metro cities.
  • The rent paid during the year minus 10% of your salary.

As a well-informed homebuyer, you should be aware of some of the crucial home loan tax benefits, before you book your most coveted flat in Kolkata. Let’s take a look—

Deduction on repayment of the principal amount of housing loan

The EMI has two features—principal repayment and interest amount. Under section 80C of the Income Tax Act of 1961, the repayment of the amount as a principal component of the EMI can be claimed as deduction for self-occupied property. 

You should however remember, if your second home is empty or if your family members or parents are living in it, then the second house becomes a self-occupied house. Furthermore, if you have an ongoing home loan for both the houses, you can claim deduction on the principal amount to be repaid on both the home loans for a maximum of up to Rs. 1.5 lakh. 

In case you have rented the second house, it is considered as ‘Let out property’ and you are liable to claim deduction for let out property as well under section 80C. 

Finally, section 80C deduction is applicable for stamp duty and registration charges paid at the time of residential property purchase. 

How to Claim Home Loan Tax Benefits under Section 80C?

By following these simple steps, you can claim home loan tax benefits under section 80C—

  1. File the ITR.

  2. At the time of entering the details in the ITR form, make sure you have entered the correct values in the various income heads as applicable to you.

  3. In the section of deduction under section 80C, calculate the tax deduction you want to claim.

Deduction on the interest of housing loan

New home buyers are more aware of the deduction on the principal amount repaid on home loan. However, according to section 24, taxpayers can also claim for deduction on the interest amount paid on the home loan for a maximum of up to Rs 2 lakh in a given financial year in case of self-occupied property. Furthermore, the amount of interest payment exceeding Rs 2 lakh is neither carried forward nor adjusted against any other income head such as capital gains, salary etc. for self-occupied property. 

For owners of two houses, and if the second house is empty or occupied by your parents, the interest amount on the home loan for the second house is also covered under section 24. While availing these home loan tax benefits, it is important to remember, that the total deduction on the interest paid on the home loan for both the houses should not exceed Rs 2 lakh in a financial year.

Extra deduction on home loans from the affordable housing segment

Homebuyers whose house falls under the affordable housing category are eligible for an extra deduction on the interest amount on the home loan required for buying that house. The deduction can be claimed under section 80EEA for a maximum of Rs 1.5 lakh in a financial year. Furthermore, it is available over and above the deduction under section 24 for a maximum of Rs 2 lakh. Thus, as a taxpayer you can claim deduction of up to Rs 3.5 lakh in a financial year while buying an affordable or cheap flat in kolkata.

However, you should know that the same amount cannot be claimed twice under two different sections. For instance, if the interest amount is Rs 1.4 lakh in a financial year on a home loan, then deduction can be claimed either under section 24 or in section 80EEA.

Below are other conditions that must be met, to make the best use of such home loan tax benefits—

  • The housing loan must be incurred from a financial institution such as a bank or housing finance company and for the purchase of a residential house property.
  • The home loan must be taken between April 1, 2019 and March 31, 2021.
  • The stamp value duty of the house property should not exceed Rs 45 lakh.
    The taxpayer/homeowner should not own any residential property as on the date of sanction of the loan.
  • The taxpayer/homeowner should not be eligible to claim deduction under the existing section 80EE.

Recent reports however suggest that Budget 2021 has extended the timeline for availing the home loan tax benefits by another year for homebuyers to claim additional deduction on interest payments on home loan to March 31, 2022 from the current deadline of March 31, 2021.

Deduction under section 80EE

Reintroduced in FY 2016-17, this deduction is especially in favour of first-time home buyers availing home loans. Tax payers who have taken a home loan in FY 2016-17 were allowed to claim an additional tax deduction of up to Rs 50,000 under Section 80EE. 

Currently, home loan borrowers paying interest on the loan can claim deduction of interest paid from his/her gross total income up to a maximum of Rs 2 lakh per annum under Section 24. The deduction of Rs 50,000 introduced in Budget 2016 is over and above this limit of Rs 2 lakh.

Below are other conditions that must be met to make the best use of such home loan tax benefits—

  • The additional deduction for interest on loan taken is applicable only for residential house property.
  • It is limited only to first-time home buyers.
  • The maximum additional benefit is capped at Rs 50,000 a year.
  • The value of the house for which the loan is taken cannot exceed Rs 50 lakh. 
  • The loan amount cannot exceed Rs 35 lakh.
  • The loan has to be sanctioned between April 1, 2016 and March 31, 2017.

Although this is not available for new home loans taken after April 1, 2017, if you have already availed a home loan in FY 2016-17, then you are liable to claim this deduction until you have fully repaid the loan.

How to claim Tax Benefit on Home Loan?

If you are wondering how to claim home loan tax benefits, follow these simple steps to maximize the benefits—

  • Calculate the tax deduction of the interest amount on the home loan you have taken.
  • Submit the home loan interest certificate to your employer, to adjust the deduction with TDS OR File the ITR yourself and submit the certificate as required.

Note: Self-employed homebuyers are not required to submit the certificate. However, you should keep it with you as it can be asked by the IT department.

In closing 

So, all home loan tax benefits related to deductions can help you to get a maximum deduction of Rs 5 lakh (Rs 2 lakh u/s 24, Rs 1.5 lu/s 80C and Rs 1.5 lakh u./s 80EEA) if it meets the above mentioned specified conditions. If you are planning to buy a new flat in Kolkata, you can plan your purchase in such a way that your loan helps you to get the maximum deduction.

FAQs

How do I claim tax benefits on the home loan?

You can claim home loan tax benefits either by filing your ITR or by submitting the home loan interest certificate to your employer.

How much of a home loan is tax-deductible?

You can claim deduction of up to ₹ 1.50 Lakh for principal repayment and up to a maximum of ₹ 2 Lakh for interest on the home loan in a financial year.

Is Home Loan good for tax benefit?

Yes, the government schemes encourage you to take a loan for buying your own house. You can claim a deduction for principal repayment as well as for interest on your home loan.

What is the benefit of a home loan?

By taking a home loan, you do not need to save huge amounts of money to buy your own house. A home loan can help you to invest your savings in other areas, which will reap you higher benefits. Moreover, you can claim tax benefits available on the home loan.

What is the benefit of home loan transfer?

You have the option to transfer your home loan from one lender to another if the other one is providing a loan at a considerably lower interest rate. By doing so, you will pay less EMI as well as an overall interest outgoing amount.

Can both husband and wife claim home loan interest?

If both husband and wife are the co-owners as well as co-borrowers of the loan, then both can claim deduction on home loan interest.

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