Understanding home loan tax benefits for Indian homeowners
What's the story
Buying a home is a significant milestone for many, and it comes with its set of financial challenges. However, the Indian government offers several tax benefits on home loans to make this journey easier. These benefits not only reduce the tax burden but also encourage homeownership. This article aims to demystify these tax advantages for everyday homeowners in India.
Principal deduction
Save on principal repayment
The principal repaid on a home loan qualifies for a deduction under Section 80C of the Income Tax Act. Homeowners can claim a deduction up to ₹150,000 annually from their gross total income. This is within the overall ₹150,000 limit of Section 80C, which also includes investments like the Public Provident Fund, Equity Linked Savings Scheme, and life insurance premiums.
Interest deduction
Deduction on interest payment
Under Section 24(b) of the Income Tax Act, homeowners can claim a deduction on their home loan's interest component. The maximum deduction allowed is ₹200,000 per annum for a self-occupied property. There is no upper limit for the interest deduction on let-out properties. This provision effectively reduces the overall cost of borrowing for homeowners, making it a significant tax-saving opportunity.
First-time advantage
Additional benefits for first-time homebuyers
First-time homeowners gain an advantage under Section 80EEA, which offers an additional deduction on interest paid up to ₹150,000 per annum. This benefit is on top of the ₹200,000 allowed under Section 24(b). Eligibility requires that the stamp duty value of the house does not exceed ₹4.5 million and that the loan was sanctioned between April 1, 2019, and March 31, 2022.
Sharing benefits
Joint home loan advantages
Joint home loan borrowers, such as spouses or family members, can each claim deductions under Sections 80C and 24(b). This allows for a doubling of the tax-saving potential if both are paying EMIs and own the property together. Such benefits can notably reduce taxable income for those with home loans in India, fostering better financial management and real estate investment.