How to Save Income Tax on a Home Loan?

There are certain conditions mentioned in the respective sections of the Income Tax Act, 1961 in order to claim deductions on home loan. These are briefly listed below:

• Section 80C talks about the deductions one can avail on home loan for a maximum amount of Rs 1.5 lakhs. It also restricts the beneficiary of the home loan from selling the property for a period of 5 years from the date of possession.
• Section 24b focuses on the interest part of the home loan. The maximum deduction is capped at Rs 2 lakhs with the following 2 conditions:
  • Loan should only to be taken either for construction or purchase of property
  • In case of construction, it must be completed within 5 years of loan being sanctioned.
• Section 80EE also pertains to interest on home loan and this is applicable to home loans sanctioned from 1st April 2016 to 31st March 2017. Once the above limit of Rs 2 lacs is exhausted, further deduction of Rs 50,000 under this section can be availed. Another condition of this deduction is that it’s only for the individuals opting the old tax regime and not owning any other property at the time of taking the loan. Along with this, the house value must be equal to or less than Rs 50 lacs while the loan amount mustn’t be more than Rs 35 lacs.
• Section 80EEA again circles the interest part of the home loan. It was introduced in 2019 to increase the deduction limit given in Section 80EE from Rs 50,000 to Rs 1.5 lacs. The following are some important conditions to avail income tax benefits u/s 80EEA:
  • Only for individuals (resident or non-resident, both)
  • Must not own a property at the time of taking the home loan
  • Loan must be sanctioned between 1st April 2019 and 31st March 2022
  • Value of the property (stamp duty) must be less than Rs 45 lacs

Other than the above-mentioned features of availing deductions for home loan under the Income Tax Act, 1961, there are some important points that should not be overlook. These are:

• For constructions taking more than 5 years from the sanction of home loan, interest of up to Rs 30,000 only can be claimed as deductions (in case of the loan taken for the construction of property).
• In case of loan taken jointly, both parties can claim deduction on home loan interest for an amount up to Rs 2 lacs.
• Similarly, for joint parties, both can claim deduction on principal repayment for an amount not exceeding Rs 1.5 lacs.
• Both the parties should be co-owners of the property to avail the above benefits (point 2 and 3)
• Deductions u/s 80C, 80E and 80EEA are not applicable on registration charges.
• Section 24B is not applicable to self-occupied properties. It is especially for let-out properties only.
• In joint case, deductions by them are applicable basis their individual shares in the property.

Acquiring a home loan not only facilitates the dream of owning a house but also offers significant tax saving opportunities. The Indian government, recognizing the dual benefits of home ownership and the encouragement of financial savings, has structured the Income Tax Act to offer home loan tax exemption to home loan borrowers. When planned strategically, you can reap the maximum tax benefits on home loan. The following pointers explain the ‘how and why’ of it: