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The Tax Benefits of a Home Loan

January 10

Author: Team Piramal Realty

Buying a home is on the bucket list of most people and is one of the most important financial goals in life. The freedom that accompanies the achievement of a life goal as pivotal as having your own home is priceless. However, whether you buy a house or construct one, there is a significant investment involved in the undertaking.

n order to encourage people to purchase their own houses, there are several provisions in the Income Tax Act, 1961, that allow for a tax deduction for the various components of the purchase or construction of a house, particularly when a home loan is involved. Tax laws have a notoriety for being complex and layered or at least of being perceived as such. If you are looking to buy a house soon, here is a simple guide on the tax benefits of a home loan.

Home Loan Tax Benefits

Under the provisions of the Income Tax Act, 1961, home loan tax benefits are available in various forms and on different components of a home loan. It is important to note here that you can take a home loan for the purchase or construction of a house. In case a home loan is taken for the latter purpose, the construction of the house must get completed not later than five years from the end of the financial year during which the loan has commenced.

The repayment of a home loan can be bifurcated into two essential components, namely, the principal and the interest. The tax benefits for the repayment of both of these components are covered by different sections of the Income Tax Act, 1961. Here are the major home loan tax benefits you must be aware of.

Tax Deduction for the Repayment of the Principal of a Home Loan

The principal of a home loan is the loan amount that gets sanctioned and disbursed, whether in the form of a lump sum or in instalments. You can claim a tax deduction to the tune of ₹1.5 lakhs per annum for the portion of your home loan EMI that accounts for the repayment of the principal amount. This deduction is available under Section 80C of the Income Tax Act, 1961.

Therefore, if you are repaying your home loan, you must show the particulars of the principal part of the EMI for a deduction under Section 80C. However, you must remember that this deduction comes with a caveat – that you cannot sell the house earlier than five years of acquiring its possession.

If you do end up selling the house for which the home loan had been taken within five years of taking possession of it, the total of the tax deductions claimed for the repayment of the principal shall get added to your income in the year of the sale, and will be taxable.

Tax Deduction for the Interest Paid for a Home Loan

You can claim a tax benefit on the interest paid towards the repayment of a home loan. This deduction is available under Section 24 of the Income Tax Act, 1961. You can get a maximum deduction of ₹2.0 lakhs from your income on account of the interest for a home loan.

The above deduction is available for a self-occupied house as well. If you have rented out your property for which you have an active home loan, there is no upper ceiling on the tax deduction you can claim for your home loan interest.

Tax Deduction for the Interest Paid for a Home Loan when the House is Under Construction

Oftentimes, people purchase properties that are under construction and will be ready to move in several years later. In such a case, the repayment of a home loan begins well before the possession of the house passes to the borrower.

If you have purchased an under-construction housing property with the help of a home loan, you can claim a tax deduction on the interest paid only after the construction of the house finishes. This is in stark contrast to the purchase of a fully constructed house, in which case you can immediately claim a tax deduction for the home loan interest.

However, once the construction of the housing property for which you have taken a home loan is complete, you can claim a tax deduction on the interest thus paid in five equal annual instalments. The maximum deduction you can claim under the head of income from housing property is subject to an upper limit of ₹2.0 lakhs.

Tax Deduction for Stamp Duty and Registration Charges

The purchase of a house attracts a mandatory Stamp Duty. You can claim this payment as a tax deduction under Section 80C, provided the maximum deductions claimed under the section do not exceed the upper ceiling of ₹1.5 lakhs. It is important to note that you are eligible to claim this deduction only in the year in which the expense occurs.

Tax Deduction for Joint Home Loan

There are higher home loan tax benefits available to you if the loan is taken on a joint basis. In the event of a joint loan, both the co-borrowers can claim the following tax benefits in their respective tax returns, provided they are co-owners of the underlying housing property:

  • A tax deduction to the tune of ₹1.5 lakhs for the repayment of the principal (Section 80C)
  • A tax deduction to the tune of ₹2.0 lakhs for the repayment of the interest (Section 24) Tax Deduction Under Section 80EE

Under Section 80EE of the Income Tax Act, 1961, you can claim an additional tax deduction on the interest portion of your home loan repayment, subject to an upper limit of ₹50,000. This deduction is permissible only if the following conditions are fulfilled:

  • The home loan is for ₹35.0 lakhs or less, and the underlying housing property is valued at less than or equal to ₹50.0 lakhs.
  • The sanctioning date of the loan falls between April 1, 2016, and March 31, 2017.
  • As of the date of the sanctioning of the loan, the borrower is a first-time homebuyer.

Tax Deduction Under Section 80EEA

Section 80EEA of the Income Tax Act, 1961 allows you to claim a tax deduction of ₹1.5 lakhs on the interest portion of your home loan EMI. In order to claim this deduction, you must fulfil the following criteria:

  • Your home loan is sanctioned between April 1, 2019, and March 31, 2021.
  • The value of the housing property for stamping purposes does not exceed ₹45.0 lakhs.
  • You are a first-time homebuyer at the time of the sanctioning of the loan.
  • You are not claiming any tax deduction under Section 80EE.

Purchase Your Dream Home At Piramal Realty

Since there are multiple tax benefits of a home loan, not only is buying a house a feasible financial decision but also one that offers tax relief. With the home loan interest rates being the lowest in four decades, there is no time like the present to bring your house buying plans to fruition.

If you are looking to buy a house in Mumbai, you must check out the luxury projects of Piramal Realty spread across various regions of the city. Thoughtfully designed and executed, our housing projects offer state-of-the-art amenities in excellent locations. With our collaborations with some of the most celebrated architects and design firms, our projects have no dearth of excellence in design, amenities and construction.

You can choose your dream abode at one of the following Piramal Realty residential projects in the Mumbai Metropolitan Region.

Buying a house is easier now than it has ever been, and with the availability of several home loan tax benefits, the overall cost of a home loan ends up being more affordable. Book your home at Piramal Realty now and tick ‘buying a house’ off your bucket list. You can reach out to our support team for any assistance in the process. It is also possible to take e-tours of our various projects and get a glimpse of the design and structure of the premises.


Disclaimer – This article is based on the information publicly available for general use. We do not claim any responsibility regarding the genuineness of the same. The information provided herein does not, and is not intended to, constitute legal advice; instead, it is for general informational purposes only. We expressly disclaim any liability, which may arise due to any decision taken by any person/s basis the article hereof. Readers should obtain separate advice with respect to any particular information provided herein.

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