According to the guidelines of the Income Tax Act of 1961, obtaining a home loan can offer chances for tax savings. Provisions in the most recent financial budget improved these advantages even more. Nirmala Sitharaman, the Union Finance Minister, suggested extending the deadline for further deductions on home loan interest payments during her budget speech. After being extended until 31 March 2022, the deadline has been moved to 31 March 2024.
Tax Benefits on Home Loan (FY 2023-24)
Income Tax Act | Maximum Deductible Amount |
Section 24 | Rs.2 lakh per annum |
Section 80C | Rs.1.5 lakh per annum |
Section 80EE | Rs.50,000 |
New Updates (Union Budget 2023-2024)
- Eligibility period for claim of additional deduction for interest of Rs.1.5 lakh paid for loan taken for purchase of an affordable house extended till 31 March 2022.
- Eligibility period for claiming tax holiday for affordable housing project extended by another year. The new deadline is 31 March 2023.
- A new tax exemption was proposed for the notified Affordable Rental Housing Projects to promote the supply of Affordable Rental Housing for migrant workers.
- While there were no major changes regarding the deductions under home loans, the only major news worth noting was the allocation of Rs.48,000 crore to the Pradhan Mantri Awas Yojana (PMAY).
Deduction for Interest Paid on Housing Loan under Section 24
A loan must be taken for the purchase or construction of a house property to claim a tax deduction. If it is taken for the construction of a house, then construction must be completed within five years from the end of the financial year in which the loan was taken.
The interest portion of the home loan EMI for the year can be claimed as a deduction from your total income up to a maximum of Rs 2 lakh under Section 24.
From the assessment year 2018-19 onwards, the maximum deduction for interest paid on self-occupied house property is Rs 2 lakh.
For let out property, there is no upper limit for claiming tax exemption on interest, which means that you can claim deduction on the entire interest paid on your home loan.
In case the construction exceeds the stipulated time, i.e. 5 years, you can claim deductions on interest of home loan only up to Rs 30,000 for the financial year.
Deduction on Interest Paid Towards Home Loan During the Pre-Construction Period
under-construction property and have not moved in yet but you are paying the EMIs. In this case, your eligibility to claim interest on the home loan as a deduction begins only upon completion of construction or immediately if you buy a fully constructed property.
So, does this mean you would not enjoy any tax benefits on the interest paid during the period falling between the borrowing of loan and completion of construction? Yes, it will be available but with some conditions and in future years.
Deduction for Stamp Duty and Registration Charges under Section 80C
Besides claiming the deduction for principal repayment, a deduction for stamp duty and registration charges can also be claimed under Section 80C but within the overall limit of Rs 1.5 lakh.
Deduction on Principal Repayment under Section 80C
The principal paid on the home loan EMI for the year is allowed as a deduction under section 80C. The maximum amount that can be claimed under this section is up to Rs 1.5 lakh.
But to claim this deduction, the house property should not be sold within five years of possession. Otherwise, the deduction claimed earlier will be added back to your income in the year of sale.
Additional Deduction under Section 80EEA
- The stamp value of the property does not exceed Rs 45 lakh.
- The loan must have been sanctioned between 1 April 2019 to 31 March 2022 (extended from 31 March 2021)
- On the date of loan sanction, the individual does not own any other house, i.e. first time home buyer.
- The individual should not be eligible to claim a deduction under Section 80EEA if claiming a deduction under Section 80EE.
Additional Deduction under Section 80EE
Additional deduction under Section 80EE is allowed to the home buyers for a maximum of up to Rs 50,000. To claim this deduction, the following conditions should be met:
- The amount of loan taken should be Rs 35 lakh or less, and the property’s value shall not exceed Rs 50 lakh.
- The loan must have been sanctioned between 1st April 2016 to 31st March 2017.
- And on the date of loan sanction, the individual does not own any other house, i.e. first-time house owner.
FAQs
How much tax benefit do I get on home loan?
The tax benefit for a home loan as per different sections in Income Tax Acts is listed below
- Up to Rs 2 lakh under Section 24(b) for self-occupied home (No limit in case of let out property)
- Up to Rs 1.5 lakh under Section 80C
Are there any tax benefits on second home loan?
Yes. When the first home is self-occupied and the second home is vacant, it will be considered as self-occupied. In such a case, a tax deduction can be claimed on the interest paid for both houses. However, it cannot exceed Rs 2 lakh. When the first home is self-occupied, and the second one is given on rent, you have to declare the rental income of the second property. From there you can deduct the standard deduction of 30%, interest on the home loan without any limit and the municipal taxes paid.