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Home loan can save your Rs 5 lakh in taxes annually; here’s how

Home loan

A home loan comes with benefits. It helps you accomplish a major milestone in life by making it easier for you to build or buy your own house. It comes with affordable rates of interest. And in most cases, the home loan eligibility criteria are also easy to meet, making it possible for most people to access housing finance without any hassle.

But these are not the only advantages of availing a home loan. Did you know that there are also many tax benefits that you can enjoy each financial year, all thanks to the loan you availed for constructing or purchasing your dream home?

In fact, home loan tax benefits can go up to Rs. 5 lakhs per year! Want to know how this works? Check out the details below.

Tax benefits under section 80C of the Income Tax Act

Under this section, the principal component of your EMI is deductible from your total taxable income up to Rs. 1.5 lakhs per financial year. The one-time stamp duty and registration charges are also eligible for deduction under this section.

The only caveat to enjoying this home loan tax benefits without any reversal is that the house property for which you availed the loan should not be sold within 5 years of possession.

Tax benefits under section 24 of the Income Tax Act

Section 24 offers tax benefits on the interest component of the EMI. If your property is self-occupied, you can claim interest up to Rs. 2 lakhs as a deduction from your total taxable income each year. On the other hand, if you have let out the property for which you have availed the loan, the entire interest paid during the financial year is deductible.

Tax benefits under section 80EEA of the Income Tax Act

Under this section of Income Tax Act[1]  benefits under 80 EEA, first-time homeowners can claim tax benefits on the interest component of the home loan, over and above the benefits available under section 24. As per section 80 EEA, if you meet the conditions listed below, interest is deductible up to Rs. 1.5 lakhs per year.

  • You should have availed the home loan from a financial institution or a housing finance company.
  • The stamp duty value of the property should be Rs. 45 lakhs or lower.
  • You should not claim the benefits under section 80EE.

A summary of the home loan tax benefits

Here is a quick glance at the tax benefits outlined above, so you can get a better idea of how they add up to Rs. 5 lakhs.

EMI component on which tax benefits are availableRelevant section of the Income Tax ActMaximum amount of deduction available
Principal (including stamp duty and registration charges)Section 80CRs. 1.5 lakhs
InterestSection 24Rs. 2 lakhs
InterestSection 80EEARs. 1.5 lakhs
Total Rs. 5 lakhs

Conclusion

See how a home loan can offer you so many tax benefits if you qualify the home loan eligibility criteria while simultaneously helping you fulfill your goal of owning your dream home? If you have already availed a home loan, or if you are planning to do so soon, ensure that you keep these tax benefits in mind and take advantage of these provisions to ease your tax burden.

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