|Home Loan Tax Benefit In India Is Available For Both Housing Loan Interest And Principal Deduction Under Section 24(b), 80C, 80CCE & Section 80EE Of Income Tax Act 1961.|
Income Tax Rebate On Home Loan For FY 2020-2021
The 2020 financial budget has not altered the housing loan tax rebates for the home loan borrowers other than: a) Increasing the time limit for availing the loans for houses under affordable housing schemes announced by the government till 31st March 2021. Which means that a home loan borrower can claim the benefits of additional deduction on home loan interest of up-to Rs.50,000/- till 31st March 2021. The benefit is provided under section 80EE of Income Tax Act, 1961 & b) The borrower owning more than one property cannot claim any of the properties as self-occupied to maximize the tax benefits.
The following grid highlights the sections of the Income Tax Act that provide home loan rebate to the borrowers.
|Home Loan Deduction In Income Tax For FY 2020-21|
|Home Loan Tax Benefit Under Section||Nature Of Home Loan Deduction In Income Tax||Maximum Tax Amount Deductible|
|80C||Housing loan principal repayment||Rs.1.5 Lakhs
(Including one-time stamp duty and registration cost)
|24(b)||Deduction for interest on housing loan||Rs.2 Lakhs (for self-occupied properties)
No limit (for let-out properties)
|80EE||Additional home loan interest deduction for first time home buyers||Rs.50,000/-|
The EMI paid by the borrower towards the repayment of the borrowed funds from the Bank comprises two components i.e. the principal and interest amount, both of which can be separately claimed by the borrower for tax saving on housing loan under section 80C & section 24(b) respectively of the Indian Income Tax Act, 1961. To claim the home loan tax benefits under the two sections, the owner/co-owners of the property must also be the joint borrower/co-borrower to the housing loan.
Find below the tax benefits the borrower can enjoy:
- Tax benefit on second home loan.
- Tax benefits on home loan for joint ownership property.
- Income tax rebate on home loan for under construction property.
- Tax benefits for first time home buyers
- Tax exemption on multiple home loans.
- Tax benefits for interest paid for housing loan for self-occupied property.
- Tax benefits for interest paid for housing loan for let out property.
- Pre EMI interest tax benefit.
- Home renovation loan tax benefit.
- Home improvement loan tax benefit.
- Home loan top up tax benefit.
- Loan against property tax benefit/mortgage loan tax benefit.
Tax Benefits For Housing Loan Under 80C For Principal Repayments
Under section 80C the borrower enjoys the home loan principal repayment tax benefits. The maximum deduction under section 80C for the borrowers is available for up-to Rs.1.5 Lakhs per year. Home loan principal tax benefit can be claimed by the borrower on all types of residential property whether, first home- resale or new home (Quick guide for difference in builder home loan & resale home loan), joint ownership property, self-occupied or rent out property.
The following are the prerequisites to avail the tax benefits on principal repayment on housing loan deduction under section 80C:
- 80C housing loan benefits are available only on the residential house property for the borrower who has taken a home loan for the purpose of construction or purchase of new ready to move property.
- The 80C house loan deduction in income tax can be claimed only on the completed/ ready to occupy properties. To claim this home loan 80C deduction the borrower first needs to complete the construction, only then he can claim for the deduction.
- Additionally, if the borrower sells his property within 5 years of taking the possession of the property, he cannot claim the 80C home loan deduction. Moreover, any deduction claimed by the borrower will be reversed in the year in which the property is sold and the same will reflect as income of the borrower in the year of sale of the property.
- The borrower is allowed to claim the housing loan principal 80C deduction on both ownership properties whether self-occupied by him or let-out i.e. given on rent.
- Maximum deduction under 80C that can be claimed by the borrower in a year is up-to Rs.1.5 Lakhs.
- One-time stamp duty and registration fee can also be claimed under this deduction of 80C repayment of housing loan in the year of purchase of the property. (Click to know the list of all costs incurred for availing home loan)
- In case of joint home loans availed by the borrower, both borrower and co-borrower can apply for the deduction on principal repayment of housing loan 80C for Rs.1.5 Lakhs each per financial year.
- Principal repayment of housing loan 80C deduction is not available on the second home and the under-construction property being purchased by the borrower.
- If the borrower owns more than two properties, he can claim any of the two houses as self-occupied and claim aggregate deduction on the principal repayment up-to Rs.1.5 Lakhs per year.
Home Loan Interest Tax Benefits Under Section 24b Of Income Tax Act
Sec 24b of income tax act deals with the housing loan interest tax exemption. Maximum housing loan interest exemption limit under this section is up-to Rs.2 Lakhs per year. Housing loan interest rebates can be claimed by the borrower on all types of residential property whether, first home, second home, under-construction property, joint ownership property, self-occupied or rented out property or deemed to be let out property.
The following are the prerequisites to avail the home loan interest tax exemption under section 24b:
- Home loan interest tax deductions are available for any type of loan whether commercial, personal loan or residential house property loan, etc. taken by the borrower for the purpose of construction or purchase of new ready to move/under-construction property or for the repair/reconstruction of the house property. (Read on the advantages for purchasing a builder and resale property)
- The housing loan interest deduction in income tax is available on the accrual basis and not on the paid basis.
- Housing loan interest maximum deduction applicable for self-occupied property is up-to Rs.2 Lakhs per year while there is no housing loan interest limit for let out property.
- The home loan interest exemption in income tax is applicable for any loan amount whether it is borrowed from Bank/NBFC, private financier/ patpedhi or friends or relatives.
- The deduction under 24b can be claimed on two or more houses and hence the deduction can also be claimed on two or more housing loans with the maximum housing loan interest deduction limit of up-to Rs.2Lakhs in a year.
- Home loan interest rebate in income tax can be claimed for both self-occupied as well as let out property.
- One-time service fee, brokerage charges, prepayment charges, etc. can also be claimed under this section for tax rebate on housing loan interest.
- In order to claim the maximum interest on housing loan limit of up-to Rs.2 Lakhs in a year the construction of the property must have been completed within 5 years from the end of the financial year in which the borrower has taken the loan.
- If the construction of the property is not completed within the 5 years then the housing loan interest tax benefit will be restricted to Rs.30,000/- in a year.
- Unlike the selling restrictions on the property to avail benefits on home loan principal rebate there are no restrictions on the sale of the property to avail benefits on housing loan interest rebate in income tax.
- Deduction of interest on housing loan in case of joint ownership:
In case of joint home loans availed by the borrower, both borrower and co-borrower can apply for tax rebate on home loan interest for up-to Rs.2 Lakhs/ Rs.30,000/- each in every financial year for self-occupied property. No home loan interest exemption limit for let out properties.
- For under-construction property purchased by the borrower the income tax rebate on home loan interest before possession for the aggregate interest paid can be claimed in equal parts in the next 5 financial years after having taken possession of the property, provided the loan is taken only for the purchase or construction of the property. Interest on home loan deduction in income tax for under construction property is not available for the repairs/renovations/renewals/reconstruction of the property.
Tax Deduction Under Section 80EE & Section 80EEA For Additional Interest On Housing Loan
Sec 80EE of income tax provides additional interest benefits over and above the housing loan interest income tax exemption of section 24b, for the loan borrower who is purchasing the house for the first-time. Unlike section 24b for interest paid on housing loan deduction, the deduction us 80EE & 80EEA is allowed from the gross total income and not from the income under house property. The borrower cannot claim deduction under both sections at a time. If the borrower claims the deduction under section 80EEA he will no longer be eligible to claim deduction under section 80EE of the income tax act and vice-a-versa.
Section 80EE Deduction
Income tax section 80EE provides the additional housing loan interest tax rebate of Rs.50,000/- per year for the home loan borrower of the first residential house. The interest deduction will be available on actual interest paid and not on the accrual basis.Given below are the prerequisites to avail the additional income tax benefit on home loan interest under 80EE section of income tax:
- 80EE income tax deduction is applicable only on the loan taken for residential house property taken only for the purpose of purchase or construction of the house.
- 80EE section deduction available only for the loans sanctioned in the financial year of 2016-2017.
- The value of the property should not exceed Rs.50 Lakhs and the loan sanctioned should not exceed Rs.35 Lakhs. (Read on Small Value Home Loans)
- The maximum 80EE deduction limit is Rs.50,000/- per year till the repayment of the loan continues.
Section 80EEA Of Income Tax Act
Income tax section 80EEA provides the additional home loan interest tax rebate on PMAY-CLSS schemes for up-to Rs.1.5 Lakhs per year to the borrower, over and above the interest-income tax rebate on housing loan of section 24b. Given below are the prerequisites to avail this additional benefit of 80EEA income tax.
- The deduction is applicable only for the individual borrower on the loan taken for residential house property taken only for the purpose of purchase or construction of the house.
- Available only for the loans sanctioned in the financial year of 2019-2020.
- The property value should not exceed Rs.45 Lakhs.
- The property area should not exceed the maximum area of 90 sq. mtr.
- The borrower must not be the owner/co-owner of any other pucca house.
Additional Read: CIBIL and its significance in home loan.
Tax Benefits On Joint Home Loans
Although it is mandatory with many lender Banks/NBFCs to have a co-applicant for the home loan application, the joint home loans not only helps to enhance the home loan eligibility & secure a interest concession with women co-applicant but it also provides the tax benefits to both borrower and co-borrower/co-borrowers of the loan. (Know more on housing loan benefits for women borrowers in India). All borrowers/applicants can claim the joint home loan tax benefit on the principal as well as the interest paid as per the maximum deduction limit allowable under section 80C & 24b of the Indian Income Tax Act, 1961 provided the following conditions are meet:
- If home loan is taken in joint name tax benefit will be available only when all the borrowers/applicants are also the co-owners to the property.
- Each can claim the home loan principal tax exemption under section 80C for a maximum amount of Rs.5 Lakhs per year.
- Each can claim the home loan interest deduction under section 24b for a maximum amount of Rs.2 Lakhs per year.
- Each can also claim the additional interest benefits of up-to Rs.1.5 Lakhs per year under section 80EE & 80EEA, provided it is their first house.
Income Tax Benefits On Multiple Properties & Income Tax Benefit On Second Home Loan
Investment in assets especially in immovable assets such as properties/plots is a common and popular form of saving & investments by the people. (Quick guide for 8 Best Investment Plans For SAVINGS).The borrower makes profits on the appreciation in the value of the property and it also fetches him rent if the property is rented out forming an additional source of income for him. Moreover, if the borrower has invested in multiple properties by taking out home loans, he can also enjoy the income tax benefits on two self-occupied properties provided the following conditions are fulfilled.
- In case of more than two properties owned by the borrower, the borrower can claim any of the two houses as self-occupied and the other properties shall be deemed to have been let out.
- The maximum aggregate deduction available for principal repayment under section 80C is restricted to Rs.1.5 Lakhs per year for all home loans taken together for multiple properties.
- On the two self-occupied houses the maximum deduction for housing loan interest paid under section 24b is restricted to Rs.2 Lakhs per year for both houses taken together.
- For the let-out properties the entire interest paid against the rent received can be claimed for deductions under section 24b.
- On more than two properties the borrower has to pay tax on the basis of notional rent received from the property.
Home Loan Tax Exemption For Under Construction Property
The borrower who has purchased an under-construction property and have taken a housing loan for the purchase of the said under construction property can enjoy the following tax benefits on home loan:
- No under construction home loan tax benefits under section 80C for principal repayment of the loan.
- Home loan interest tax exemption under construction property can be availed under section 24b of the income tax for the maximum amount of up-to Rs.2 Lakhs in a year provided the construction of the property has been completed within the 5 years from the home loan taken.
- The pre-construction interest on housing loan can be claimed in equal instalments in next 5 financial years after having taken possession of the property.
- If the construction is not completed within 5 years the interest exemption is restricted to Rs.30,000/- per year.
The home loan tax benefit for under construction property is applicable only if the borrower has taken the loan for the purchase or construction of the property. The deduction is not applicable if the loan is taken for repairs/renovations/renewals/reconstruction of the property.
HRA And Home Loan Tax Exemptions
We have already discussed the tax exemptions available on the types of properties owned by the borrower. Let’s illustrate with a hypothetical situation- if the borrower is staying on rent and has also booked a property availing a housing loan from the bank. Under such circumstances the borrower will not only enjoy the standard benefits of home loan but will also be eligible for claiming HRA benefits under section 10(13A) & section 80(GG) of the Income Tax Act, 1961, explained in detail below.
HRA Exemption In Income Tax Under Section 10(13A)
- The deduction is available only for the salaried employees whose salary breakup includes HRA component.
- The borrower must be staying in a rented accommodation.
- The maximum house rent deduction in income tax allowed is minimum of:
- The actual HRA amount received from the employer.
- Actual rent paid per annum less 10% of the annual salary.
- 50% of the salary if staying in metro cities or 40% if residing in non-metro cities.
- The borrower is allowed to claim HRA deduction in income tax even if he is paying rent to his family members, provided it is backed with the required evidence.
- The borrower is also allowed to claim this house rent exemption in income tax even if he owns a house but is staying on rent in another city provided the house he owns is self-occupied and is not let-out.
HRA Rebate In Income Tax Under Section 80(GG)
- The deduction is available for self-employed and salaried employees who do not receive HRA from their employer.
- The borrower must be staying in a rented accommodation.
- The maximum deduction allowable is minimum of:
- 60,000/- per year.
- 25% of the adjustable gross total income.
- Actual rent paid minus 10% of basic salary.
- If the borrower owns any other self-occupied residential property in any other place, no deduction for HRA in income tax is allowed.
Chart For Best Home Loan Deals
|Bank Name||Rate Of Interest||Processing Fees||Tenure|
|ICICI Bank||6.90% p.a. – 8.05% p.a.||0.30% of the loan amount + applicable GST||Up-to 30 years|
|HDFC Ltd.||6.90% p.a. – 7.85% p.a.||Up-to 0.50% – up-to 1.50% of the loan amount + applicable GST||Up-to 30 years|
|Canara Bank||6.90% p.a. – 8.90% p.a.||Rs.10,000/- + applicable GST||Up-to 30 years|
|CLICK to get the complete chart|
- Who is eligible for home loan tax benefits?
Ans: A home loan borrower who has taken a loan for the purchase or construction of the residential property either for self-use or let-out is eligible to claim tax for the principal repayment and the interest paid. The loan co-borrower also being the co-owners of the property is also eligible for the tax exemptions.
The home loan customer gets tax benefit under section 80C (for principal repayment) & section 24(b) (for interest paid) and 80 EE/80EEA (for additional interest).
- How much is the 80C maximum limit?
Ans: The maximum limit for the repayment of home loan principal in 80C is up-to Rs.1.5 Lakhs per financial year. In case of joint home loan tax rebate each applicant can claim the home loan principal 80C deduction of Rs1.5 Lakhs per year.
- Home loan interest comes under which section of income tax?
Ans: The home loan interest exemption section of income tax is section 24(b), section 80E & 80EEA for additional interest benefits for the first-time home buyers.
- Are there any tax benefits on loans taken from friends?
Ans: The borrower is allowed to claim tax benefits only on the interest component under section 24(b) of the income tax act for the loans taken from the friends provided it is properly documented with an interest certificate from the friends. On the other hand, the friends will be liable to pay tax on the interest received on the funds lent.
- Does home loan insurance cover provide tax deduction?
Ans: Banks usually provide home loans with an insurance cover to the borrowers, the premium of which is either paid upfront in hefty lump sum i.e. single premium by the borrower or the banks pays the same on the behalf of the borrower and club it with the home loan amount whereby he repays it through EMIs. If the borrower pays the premium upfront, he can claim the home loan insurance tax benefits under section 80C of the Income Tax Act,1961 & if the premiums are clubbed to the home loan EMIs no tax deductions are available.
- In case of joint home loans, what are the home loan co applicant tax benefits?
Ans: The co-applicant can also claim the income tax benefits for principal repayment under section 80C for Rs.1.5 Lakhs p.a. as well as for the interest paid under section 24(b) for maximum up-to Rs.2 Lakhs p.a.
- Is home loan top-up eligible for tax exemption? How much is the top up loan on home loan tax exemption?
Ans: The home loan top-up is eligible for tax exemption under both sections of income tax, viz. Section 80C (for principal repayment) & section 24(b) (for interest paid) provided the top-up amount is used only for the purchase/construction/repairs & renovations of the property and is backed up with the necessary evidence – invoices, receipts, agreements & legal documents.
- Are there any pre-EMI tax benefits?
Ans: Pre-EMI is generally associated with under construction properties. In pre-EMI a borrower pays only interest towards the partial disbursements of his loan which has no impact on the principal amount & loan repayment tenure. Therefore, in Pre-EMI the borrower does not get any benefits on the principal repayment but can claim interest paid for housing loan for under construction property. The aggregate interest paid can be claimed in equal parts in the next 5 financial years after having taken possession of the property, provided the loan is taken only for the purchase or construction of the property. Pre EMI interest deduction under section 24 is not available for repairs/renovations/renewals/reconstruction of the property.
For complete knowledge on Pre-EMI click to read our previous post “Is Pre-EMI Better Than Full EMI.”
- How to claim tax benefits on home loan?
Ans: A salaried home loan borrower can claim tax benefits by submitting the interest certificate to his employer while others can claim the benefits by filling their income tax returns per financial year.
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