Home Business Before Applying For Home Loan You Must Know About Home Loan Tax Benefit

Before Applying For Home Loan You Must Know About Home Loan Tax Benefit

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Before Applying For Home Loan You Must Know About Home Loan Tax Benefit

The home loan segment in India is registering significant growth after the economic turmoil of 2020. One of the primary reasons behind that is RBI’s decision to reduce the policy rates and offer an EMI moratorium. This encouraged prospective homebuyers to carry forward their decision to invest in a house and helped existing borrowers reduce their financial burden.

Apart from that, the home loan tax benefit is another pointer that offers financial reliefs to a borrower. Hence, before applying for this credit, one must know about it in lengths to make the most of its advantages.

Home loan tax benefit – Vital points to know

Here are the income tax benefits applicable on housing loans that one should know about –

Under Section 80C

Under this section, home loan borrowers can claim income tax reduction of up to Rs.1.5 lakh on the principal repayment every fiscal year. It is available on both the purchase and construction of any residential property. Nonetheless, to avail of this benefit, one needs to follow the below-mentioned pointers –

  • The construction of this property should be complete before claiming this deduction.
  • Borrowers cannot sell their house within 5 years of possession.
  • If they sell it within this time period, then the deduction they have earned to date will be reversed and added to their income of the year they sell this property.

Furthermore, Section 80C also offers income tax exemption on registration charges and stamp duty. However, one can only claim it once. Individuals can also claim IT benefits on the interest side of a home loan as well.

Under Section 24B

Section 24B of the IT Act allows you to claim income tax deductions on the interest payment of a housing loan. However, the maximum claim amount threshold here is set at Rs.2 lakh per year. Moreover, this exemption here has two divisions, pre-construction and post-construction.

  • Pre-construction period: For properties under construction, the income tax benefit on annual interest paid on housing credit is available in 5 instalments. However, the construction period here cannot exceed 5 years.
  • Post-construction period: For ready-to-move-in properties, individuals are entitled to an exemption on home loan interest paid up to Rs.2 lakh. However, the property must be used for residential purposes. Moreover, if one purchases a property and lets it out, this tax rebate is an upper limit. Furthermore, for properties purchased and under construction, this deduction is applicable once it is fully complete.

Under Section 80EE

Under this section, additional tax exemption is only available to first-time homebuyers. An additional tax rebate of up to Rs.50,000 per year is available on the interest payment. However, one needs to meet the following criteria to be eligible for it –

  • This additional exemption is only available on residential properties
  • The property value must not exceed Rs.50 lakh
  • The loan amount should be less than 35 lakh

Meeting these parameters will enable individuals to claim the aforementioned deduction amount each year until they complete the repayment.

Under Section 80EEA

Homebuyers who qualify under the affordable housing loan schemes in India can apply for an additional deduction of up to Rs.1.5 lakh. This deduction is available over the Rs.2 lakh benefit offered by Section 24B, taking the total annual deduction amount to Rs.3.5 lakh.

However, one should remember a few pointers to be eligible for this deduction –

  • The property value here must not exceed Rs.45 lakh.
  • Individuals who claim tax benefits under 80EE are not eligible for this
  • The latest Union Budget has exceeded the timeline of this deduction to March 31st 2022

Moving ahead, income tax exemption on housing loan interest is also available under section 24B.

Deduction on joint home loans

Income tax deductions are also available on joint home loans. Here co-applicants can each file for an exemption of Rs.2 lakh on interest payment and Rs.1.5 lakh on principal payment of a home loan.

Income tax benefits are not the only advantages of housing credit. This financial product eases the way of becoming a homeowner with its borrower-friendly terms.

How to apply for a home loan?

Here is a detailed application process of home loans –

Step 1: Visiting the official website of your preferred lender

Step 2: Filling up the online application form with relevant details

Step 3: After the initial approval, submit required documents

Step 4: Pending a document and property verification, you will receive the funds in due time

Nonetheless, pre-approved offers extended by leading financiers streamline the loan application process. It is applicable on financial products like home loans, loans against property, etc. Individuals can now check their pre-approved offers online in a few clicks. 

Alongside that, borrowers can also take the help of a home loan eligibility calculator to determine the loan eligibility beforehand.

Since housing credit imposes a substantial debt on individuals, home loan tax benefits can be an added relief. Hence, they should keep in mind these vital pointers and file their annual income tax return accordingly to avail such benefits.

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