Everything you should know about Income Tax Benefit on Home Loan 2022

Income tax benefit on home loan: Purchasing a decent home for yourself and your family is one of the greatest life accomplishments for every individual.

For the longest time, the government of India has expressed a considerable propensity to facilitate the citizens of the country to purchase their houses. 

That is the reason why Section 80C was brought into effect on April 1, 2006, which provides a deduction of income tax on all housing loans.

In simple words, when you purchase a house, you are going to get the advantage of Income Tax Benefit on Home Loan which will lessen your monthly tax amount to a considerable extent. 

A lot of government schemes such as Pradhan Mantri Jan Dhan Yojana have been proven to be fruitful for the housing sector in India as they attempt to take down the problems of affordability as well as accessibility. 

If you wish to know more about Income Tax benefits on Home Loan, continue to read this post till the end. 

1. Home Loan Income Tax Benefit on repayment of the principal amount 

The amount of EMI or Equated Monthly Installed that you pay on your home loan consists of two segments, repayment of the principal amount of home loan as well as interest paid.

One can claim this amount of money paid to the bank as the principal segment on their housing loan EMI as a deduction as specified by Section 80C from the Income Tax Act of 1961 in the case of self-occupied properties.

You must bear in mind that in case you have an additional residence that is currently vacant or if your parents are staying at that place, then that additional residence is also going to be assumed to be a self-occupied residence. 

Abhishek Soni, who is the CEO as well as Founder of Tax2Win.in (a website for Income Tax Returns filing) states that in case an individual currently has an on-going housing loan on both the residences, then he/she is eligible for tax benefits on the amount of principal part reimbursed on the two housing loans for Rs 1.5 Lakh, at max. 

In case you have given the second home on rent, it is going to be referred to as ‘Let out property.

And it is worth noting that your Income Tax Benefit on Home Loan will remain applicable on the ‘Let out property’ too. 

This Income Tax Benefit on Home Loan under Section 80C can also be requested for the home loan registration fees as well as stamp duty disbursed during the purchase of the house.

2. Home Loan Income Tax Benefit on the amount of interest paid 

Apart from the Home Loan Income Tax Benefit on the principal sum repaid on the housing loan, taxpayers will also be able to request deduction on the amount of interest that is paid on a housing loan. 

Tax benefits on the amount of interest paid on housing loans are available for all citizens u/s 24 for Rs 2 lakh, at maximum in the mentioned fiscal year for self-occupied properties.

The amount of this home loan interest that exceeds Rs 2 lakh is neither going to be carried ahead nor be settled against any additional revenue head like salary, capital gains, and others for self-occupied properties.

You must bear in mind that in case you have an additional residence that is currently vacant or if your parents are staying at that place, then that additional residence is also going to be assumed to be a self-occupied residence.

And therefore, the amount of interest on the housing loan availed for the other property is also going to be included u/s 24. 

It is worth noting that the cumulative Income Tax Benefit on Home Loan available for the amount of interest for the two properties must not be more than Rs 2 lakh during a fiscal year. 

For ‘Let Out Properties’, a limit on the utmost amount of interest that an individual can claim has not been specified. 

Nonetheless, the casualty that is going to be settled against any other revenue head like salary will not be allowed to be more than Rs 2 lakh during a fiscal year.

The remaining amount of expense may be carried forth for 8 consecutive years to be settled against the revenue from house estate only.

Also read – Union Bank Home loan

3. Extra Home Loan Income Tax Benefit on purchasing an affordable home

In case you have purchased a property that fits in the category of affordable homes, then you can claim an additional Income Tax Benefit on Home Loan for the amount of interest paid.

This reduction is available to claim at a top limit of Rs 1.5 lakh during a fiscal year u/s 80EEA. Under Section 24, it can be claimed for Rs 2 lakh.

Hence, this means that all taxpayers will be able to have a deduction of Rs 3.5 lakh at max during a fiscal year if they purchase an affordable property. 

Borrowers must bear in mind that they won’t be able to claim the same amount two times under two distinct sections.

For example, in case you have Rs 1.4 lakh as the amount of home loan interest paid during a fiscal year, then you will be able to claim tax benefit under either Section 80EEA or section 24. 

For claiming this Income Tax Benefit on Home Loan, individuals will be required to meet certain requirements. Those are as follows:

a) The home loan should have been availed from a specific financial institution like banks or housing finance corporations for purchasing a residential property. 

b) The housing loan should have been availed between the period of 1st April 2019 to 31st March 2021. 

c) The stamp duty amount of the residential property must not be more than Rs 45 lakh;

d) The taxpayer must not be in the possession of any residential estate at the time of home loan sanction. 

e) The taxpayer must not be capable of claiming Income Tax Benefit on Home Loan under the prevailing section 80EE.

During the budget year 2021, it has been proposed to put forward the timeline for getting the housing loan by another budget year for demanding an additional tax benefit on the amount of interest paid on the housing loans from the present deadline of 31st March 2021 to 31st March 2022.

4. Home Loan Income Tax Benefit U/S 80EE

This Income Tax Benefit on Home Loan was reintroduced in the fiscal year 2016-17 for all the individuals who are buying their first house and availing a home loan for the same.

All the Taxpayers who had been granted a housing loan during this particular fiscal year were entitled to get an extra Home Loan Income Tax Benefit of up to ₹50,000 u/s 80EE. 

Presently, a borrower of a housing loan who is paying the specified amount of interest on their home loan can get a Home Loan Income Tax Benefit on interest paid of ₹2 lakh at maximum u/s Section 24.

The reduction of ₹50,000 initiated in the fiscal year of 2016 is now over and exceeds the limit of ₹2 lakh.

For claiming this Income Tax Benefit on Home Loan, individuals will be required to meet certain requirements. Those are as follows:

a) The extra Income Tax Benefit on Home Loan in the regard of interest is only going to be applicable for residential home properties.

b) It is available to claim only for those borrowers who are purchasing their first house.

c) The maximum amount of additional Income Tax Benefit on Home Loan is limited to ₹50,000 per annum.

d) The cost of the residence for which the housing loan has been granted cannot be more than ₹50 lakh.

e) The amount of home loan cannot be more than ₹35 lakh.

f) The home loan needs to be granted to the borrower during the fiscal year 2016-2017, i.e. 1st April 2016 to 31st March 2017.

Please note that this Income Tax Benefit on Home Loan will not be applicable for any home loan sanctioned after 1st April 2017.

However, in case you already have an ongoing home loan that was sanctioned in the fiscal year 2016-2017, you can claim this Home Loan Income Tax Benefit at any point in time of your home loan repayment tenure. 

Also read – Tata Capital Home loan

Thus, all deductions related to the housing loan when arranged together may help you in getting the utmost tax benefit of ₹5 lakh given that it fulfills the defined criteria. This includes: 

₹2 lakh- Under Section 24,

₹1.5 lakh- Under Section 80C, along with

₹1.5 lakh- Under Section 80EEA

 = ₹5 Lakh

Final Words

As mentioned above, there are four different types of Income Tax Benefits on Home Loans that an individual can easily claim on their housing loan.

You must go through the depth of each to truly understand the process and make sure that you also fulfill the specified requirements. 

So in case you are hoping to purchase a new home for yourself, it is highly recommended that you schedule your home loan investment in such a manner that your home loan enables you to claim the utmost amount of deduction.

You should reap full advantage of the Income Tax Benefit on a Home Loan after all! 

Frequently Asked Questions (FAQs)