Best Way to Avail of Home Loan Tax Benefits of Rs.5 Lakh

In the Union Budget 2021, the government introduced an additional tax benefit of Rs.1.5 lakh on interest payments of loans availed to purchase affordable homes. This benefit has been extended by one more year, helping individuals claim income tax exemption of up to Rs.3.5 lakh till March 2022.

Along with this, the Income Tax Act has also listed other home loan tax benefits on repayments that allow individuals to maximise their savings to as high as Rs.5 lakh.

Home Loan tax benefits

Know how to get an exemption of Rs.5 lakh on housing loan repayment

Here is an estimation on how to get home loan tax benefits of up to Rs.5 lakh along with the specific sections of the IT Act –

  • Up to Rs.1.5 lakh under Section 80C

  • Up to Rs.2 lakh under Section 24B

  • Up to Rs.1.5 lakh under Section 80EEA

When accumulated under these three sections, one can get up to Rs.5 lakh exemption on taxable income in one financial year repaying a home loan.

Nonetheless, borrowers need to have a detailed understanding of housing loan tax exemptions to maximise their benefits further.

About income tax exemptions on housing loans

Before claiming tax exemptions on home credit, individuals should familiarise themselves with the following information –

Section 80C

  • This section allows you to claim up to Rs.1.5 lakh tax exemption based on the principal repayment of housing loans.

  • It can include the stamp duty and registration fees for the property but can be claimed only once.

Section 24B

  • You can avail of income tax deductions of up to Rs.2 lakh on interest payable under this section.

  • It is only applicable to properties constructed within 5 years. Otherwise, you can claim up to Rs.30,000 per financial year.

Section 80EE

  • It is only applicable to first-time home buyers and capped at Rs.50,000 per year on interest payment.

  • However, the loan amount here cannot exceed Rs.35 lakh, and the property value must not cross Rs.50 lakh.

Section 80EEA

  • It allows borrowers to claim an additional Rs.1.5 lakh on housing loan repayments.

  • But it is only available to the ones who purchase a house through the PMAY CLSS scheme and has not claimed deductions under Section 80EE.

Apart from these, some other important points to note about home loan tax benefits are –

  • Tax deductions are only applicable to fully constructed properties or purchase of ready-to-move-in homes.

  • Upon selling the said property within 5 years of its possession, the exempted tax amount will be reversed and added to an individual’s income.

  • There is no upper limit on tax deductions on rent-out properties.

  • During the repayment period, if an applicant lives in another rented property, he/she can claim deductions in HRA as well.

  • In the case of a joint home loan, both applicants are eligible for income tax deductions as per the sections mentioned above.

While applying for a home loan, considering the tax benefits is important as it helps with the repayment. Nonetheless, individuals should also consider some additional points for a better borrowing experience.

5 points to check before availing of a housing loan

  1. Interest rates

The housing loan interest rate is the first point to consider here. Since it significantly affects EMIs, one should look around and opt for the best possible rate.

Presently, the housing loan interest rate in India is at an all-time low, making it a great time to apply for credit.

  1. EMI

Calculating home loan EMIs in advance always helps borrowers with their repayment and financial planning.

  1. Balance transfer

The home loan transfer facility helps individuals shift their outstanding to another financier for better terms of service.

  1. Additional charges

Evaluating the extra charges applicable on a housing credit in advance allow borrowers to gauge their total cost of borrowing.

  1. Pre-approved offers

The availability of pre-approved offers streamlines the loan application process. It is an important point to check before applying. Borrowers can now check their pre-approved offers online quickly with a few essential details.

Low interest rates and extension of home loan tax benefits have been encouraging for home buyers. With home loans becoming affordable, the Indian real estate sector anticipates a turn around after a sustained slump.

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