Among the primary advantages of availing a home loan are the tax deductions one can claim against their loan repayments each fiscal year. The multiple provisions in the Income Tax Act permit substantial concessions on the home loan principal and interest payments. Hence, it is essential that borrowers know the tax benefits they can qualify for and how they might obtain them.
A home loan tax benefit calculator can prove immensely beneficial for such a purpose. As a simple, user-friendly online tool, it enables you to efficiently evaluate the quantum of taxes you could save through an ongoing housing loan. But first, you must understand all the deductions available to you so that you may calculate the tax savings correctly.
Income Tax Sections That Provide Home Loan Tax Deductions
The table below depicts the various sections that offer tax benefits on a home loan:
| Applicable Sections of the Income Tax Act | Deductible Home Loan Component | Deduction Limit |
|---|---|---|
| Section 80 C | Principal repayment | Rs. 1.5 lakh |
| Section 24 (B) | Interest paid | Rs. 2 lakh |
| Section 80 EE | Interest payment | Rs. 50,000 |
| Section 80 EEA | Interest amount | Rs. 1.5 lakh |
Note: Not all borrowers can avail of the concessions under each of these provisions unless they meet the specified eligibility conditions.
Know the Tax Benefits on Your Home Loan
When you take a house loan, you make repayments to the lender in the form of equated monthly instalments or EMIs. Each instalment that you pay comprises two components – a principal amount and an interest sum. The Income Tax Act allows you to claim tax relief on both these variables separately in the ways mentioned below:
1. Section 80 C
Under Section 80 C, you may claim home loan deductions up to Rs. 1.5 lakh from your annual taxable income on the principal repayment amount. You can also secure relaxation in taxes for the payment of stamp duty and registration charges, but this may be done just once, in the same year of undergoing the expenses.
2. Section 24 (b)
Borrowers are entitled to receive a maximum exemption of Rs. 2 lakh on the interest paid for a housing loan under section 24 (b). It is important to note that the concessions apply only to properties that complete construction within 5 years. In case the construction does not finish within this time frame, you stand to gain a rebate of just Rs. 30,000.
3. Section 80 EE
Section 80 EE is a later addition to the housing loan tax benefits accorded to borrowers and applies to first-time home buyers only. They can claim an extra rebate of Rs. 50,000 on the home loan interest outgo annually, provided the loan amount is limited to Rs. 35 lakh while the property value remains below Rs. 50 lakh.
4. Section 80 EEA
Section 80 EEA extends additional tax exemptions of Rs. 1.5 lakh on the interest variable of housing loans availed between 1st April 2019 to 31st March 2022. Its main objective is to assist home buyers in the low-cost housing sector under the government’s ‘Housing for All’ initiative. Therefore, the section guidelines mandate that the property value should not exceed Rs. 45 lakh in addition to certain other parameters.
This deduction is over and above the Rs. 2 lakh exemption limit already accorded under Section 24 (b), taking your total tax relief to Rs. 3.5 lakh. Borrowers who have already acquired the rebates under Section 80 EE are not eligible to avail of the exemptions under this section.
5. Tax Benefits on Joint Home Loans
When you apply for a home loan with another applicant, who co-owns the house and shares the instalment pay-outs, lenders are more likely to support your loan application. In addition to raising your loan eligibility and reducing the repayment burden, a joint home loan qualifies you for double the tax reductions since each borrower is assured of the available deductions individually.
Other Important Aspects to Note
Given below are other significant considerations that must be borne in mind when estimating your probable tax benefits:
- Tax rebate can be claimed only at the end of property construction or when you acquire a ready-to-move-in house.
- You may avail of the exemptions every year until you repay the loan in full.
- If you sell the house within 5 years of possession, the claimed benefits will be reversed and clubbed with your taxable income.
- When you purchase a property and let it out on rent, there is no bar on the maximum amount you may claim as tax relief.
- If you have taken a home loan but continue to reside in a rented flat, you can claim tax benefits against Housing Rent Allowance (HRA).
Steps to Claim Tax Benefits on a Home Loan
The procedure to avail of tax benefits on a home loan is fairly straightforward if you know the steps involved. These include as follows:
- Check the tax sections carefully to compute the total exemptions you may be eligible for
- Request your lender to issue a home loan certificate, which shows the repayments for that financial year along with the breakup
- Submit the loan interest document to your employer for making TDS adjustments. You may also present the certificate while filing your annual income tax returns
- Ensure that you have all the documentation from relevant authorities needed for claiming tax concessions
How to Calculate Home Loan Tax Rebates
Once you are ready to get down to the actual calculations, use a home loan tax benefit calculator to estimate tax savings for the fiscal year. It will enable you to instantly and accurately calculate the applicable deductions if you follow the steps listed here:
- Access the home loan tax benefit calculator of your choice
- Enter the year of assessment and your category from the given options: male, female, senior or super senior citizens
- Input your annual income, the principal repayment sum and the interest amount paid that year in their respective fields
- Click on ‘Calculate’ to view the results
Summing Up
A home loan can be a great convenience to anyone looking to secure easy financing solutions for funding their dream home. It also provides customised repayment options as well as ample tax deductions that can considerably reduce your income tax liability. While the entire process of tax calculation can be lengthy, tedious and liable to mistakes; financial tools such as a home loan tax benefit calculator aid in computing the applicable tax rebates with better accuracy and speed helping you make the most of your finances.
