Buying a house with an easy home loan is usual for countless middle-class Indians. However, most people are unaware of the tax benefits that home loans come with. These benefits are often a relief from the high home loan interest rates and ease a buyer’s financial burden as they don’t have to worry about paying several lakhs in taxes.
Here are some details about tax benefits offered under two sections of the Income Tax Act. Read on to find out what they are and if you qualify for them.
Section 24: Tax Benefit on Interest Charged in a Home Loan
Under Section 24 of the Income-Tax Act, borrowers of home loans can avail of tax benefits on the interest paid. This Section is valid for home loans taken for construction, purchase or reconstruction of a house. According to it, the amount of home loan interest paid is deducted from the income from house property. Since the income is reduced, the tax on it also reduces.
Here are some key features of Section 24 that every home loan borrower must be familiar with.
- Under Section 24, borrowers can claim a maximum tax deduction of Rs. 2 lakhs for self-occupied houses.
- If the property on which the home loan has been taken is not self-occupied, there is no upper limit on tax deductions. Borrowers can even claim the entire amount of home loan interest as a tax deduction. However, if the house is not self-occupied only because the owner works in some other location and lives on a different property not owned by him in that location, the upper limit stays at Rs. 2 lakhs.
- For properties under construction, the upper tax deduction limit of Rs. 2 lakhs is valid, only if the property is occupied within 5 years from the date of loan sanctioning. If this condition is not met, the upper limit of tax deductions is reduced to Rs. 30,000.
Section 80EE: Tax Deductions on Home Loan Interest
Just like section 24, section 80EE deals with tax deductions on interest payments of home loans. You can claim deductions, under this Section, on home loans taken for all types of housing properties from any lending institution across the country. Here are the key features of Section 80EE:
- You can claim a maximum deduction of Rs. 50,000 under this Section. This limit is applicable over and above the maximum limit of Rs. 2 lakhs offered under Section 24.
- You can claim this deduction only if you are an individual and not any other kind of taxpayer.
- Section 80EE is valid on home loans of Rs. 35 lakhs or less taken on houses costing Rs. 50 lakhs or less.
- Prospective homeowners who wish to avail deductions under Section 80EE should not own any other house anywhere in India.
- There is no need for the property to be self-occupied.
Make sure to check your home loan eligibility for deductions whenever you apply for a home loan online or offline. If you qualify for deductions under both Section 24 and Section 80EE, make sure to claim them as quickly as possible. This way, you can save plenty of taxes and devote that money to paying your EMIs.
Remember to use a home loan EMI calculator to plan your EMI payments and deliver them on time, since being a defaulter can damage your financial standing and creditworthiness. Home loan calculators are available on most lenders’ websites.
If you avail of all taxation benefits on a home loan, you are sure to feel more comfortable repaying it.