From the growth rate of 14.9% in April 2019, home loan has seen further push after the introduction of new tax reforms, which has surged its growth rate to 18.6%. The Government of India, in its initiatives, has been the promoter of affordable housing for all for a few years now, and tax exemption is a crucial factor in the direction of encouraging people to avail of a home loan and buy a house of their own.
As a borrower, it is imperative to understand the tax benefits available under the Income Tax Act so that you can avail of these benefits and save money. The tax deduction available for home loan borrowers are covered in three different sections. Below these sections are discussed in detail.
The deduction for principal repayment is provided under Section 80C. Of all the sections that include benefits for a home loan, this is the only section that provides a tax deduction for principal repayment. The essential features of Section 80C are:
- The house purchased or constructed by availing the home loan cannot be sold before 5 years.
- The maximum amount that can be claimed is Rs. 1.5 lakhs.
- The deduction for principal repayment can be claimed only after the construction is complete or the house is purchased.
- In case of a joint home loan, the maximum deduction of Rs. 1.5 lakhs is available for each borrower separately but limited to the actual amount paid.
Apart from principal repayment, this section also provides a deduction for the payment of stamp duty and registration charges.
Section 24 (b)
The deduction for payment of interest on a home loan is provided under section 24(b). The essential features of this section are:
- If you have let-out the property, then there is no maximum limit up to which you can claim deduction under this section, subject to actual interest accrued on home loan for that financial year.
- In case the property is not let out, the maximum deduction available is of Rs. 2 lakhs.
- In the case of joint borrowers, each borrower can claim up to Rs. 2 lakhs for interest on the home loan, subject to the actual amount accrued in the concerned financial year.
However, in case the home loan is availed for the construction of a house, the same must be completed within 5 years of the end of the financial year in which the loan is availed. In case it takes longer, then you can claim only up to Rs. 30,000 as a deduction under this section.
Section 80 EEA
The benefit under this section is available only to first-time home buyers. The essential features of Section 80 EEA are:
- To avail benefit under this section, the stamp value of the house cannot exceed Rs. 45 lakhs.
- Also, there are certain limits with regards to the carpet area based on the city it is located in.
- The maximum benefit you can claim under this section for interest on a home loan is Rs. 1.5 lakhs.
- In the case of a joint home loan, each borrower is eligible for claiming the deduction for up to Rs. 1.5 lakhs.
The benefit under Section 80 EEA is available to those borrowers who have availed home loan in the financial year 2019-20.
Deciding to buy a house and then going all the way to select the dream home and arranging for its finance is not a straightforward task. Just like before choosing the right house, multiple options must be viewed and assessed, similarly before applying for the home loan; you need to check various aspects. Among those various aspects, the lowest home loan rate and low prepayment or foreclosure fee are significant.