Home Loan Tax Benefits Decoded: Your Ultimate Guide

When purchasing a residential property through a home loan, individuals can avail of tax benefits under various sections of the Income Tax Act. Understanding these tax-saving schemes is essential for maximizing savings and making informed financial decisions. In this blog, we will delve into the details of tax benefits associated with home loans and the specific sections of the Income Tax Act that provide these benefits for the Assessment Year 2024–25.

Who Can Claim Deductions?

According to the provisions of the Income Tax Act, only individuals who have ownership of the property and have taken the loan in their name can claim deductions on a home loan. This benefit is available to individuals or members of Hindu Undivided Families (HUFs), and it does not extend to companies, partnership firms, body corporates, or trusts.

Section 24: Deductions from Income from House Property

Under Section 24, individuals can claim deductions on the interest paid on the principal amount of the home loan. The sub-clauses in this category include:

1. Self-Occupied Property: If the loan is taken for a self-occupied property, individuals can claim a deduction of up to Rs. 2 lakh or the amount of the loan, whichever is lower.
2. Purchase or Construction: If the loan is used for the purchase or construction (not renovation) of a property, individuals can claim the interest paid. The deductions can be claimed on the interest paid before the completion of construction or purchase in five equal instalments from the year of purchase or completion.

Conditions for Section 24 Deductions

To claim the maximum deduction on the loan interest amount, individuals must fulfil the following conditions:

1. Buy or Complete Construction: The house must be purchased or construction should be completed within five years (three years until FY 2015–2016) of taking the loan.
2. Loan Date: The home loan should be dated on or after April 1, 1999.
3. Interest Certificate: Individuals must possess an interest certificate for the loan they have taken.

Exceptions to Section 24

There are a few exceptions to Section 24 deductions:

1. Non-Occupancy: If the individual does not occupy the house due to employment or business in another town and lives on rent or in another property in the city of employment, they can claim tax deductions on interest payments up to Rs. 2 lakh.
2. No Deduction for Brokerage or Commission: There is no deduction available for brokerage or commission paid for arranging the loan or tenant.

Conditions for Section 80C Deductions

The only condition for claiming deductions under Section 80C is that the house should not be sold within five years of possession. If the property is sold within this period, the previously claimed deduction will be added back to the individual’s income in the year of sale.

Section 80EE: Home Loan Interest Interest Deduction

Section 80EE provides deductions in respect of interest on loans for residential house property. The maximum allowable deduction under this section is Rs. 50,000.

Conditions for Section 80EE

To avail of deductions under Section 80EE, individuals must fulfil the following conditions:

1. Loan Amount: The loan amount should be Rs. 35 lakhs or less.
2. Property Value: The value of the property should not exceed Rs. 50 lakhs.
3. Loan Sanction Date: The loan must be sanctioned between April 1, 2016, and March 31, 2017.
4. First-Time House Owner: On the date of loan sanction, the individual should not own any other house, making them a first-time house owner.

Section 80EEA: Home Loan Deduction on Specific Residential Property

Section 80EEA, introduced by the Union Budget 2019, allows deductions in respect of interest on loans for certain house property. The maximum deduction available is up to Rs. 1,50,000.

Conditions for Section 80EEA

To claim deductions under Section 80EEA, individuals must meet the following conditions:

1. Stamp Value: The stamp value of the property should not exceed Rs. 45 lakhs.
2. Loan Sanction Date: The loan must be sanctioned between April 1, 2019, and March 31, 2022.
3. First-Time Homebuyer: The individual should be a first-time homebuyer and not own any other residential property on the date of loan sanction.
4. Affordable Housing Project: The housing project should be eligible under the affordable housing scheme, as notified by the government.

Conclusion

Tax benefits on home loans can significantly reduce the financial burden of borrowers while also encouraging homeownership. Individuals must carefully understand the provisions of the Income Tax Act and the specific sections mentioned above to make the most of the available deductions. It is advisable to consult with a tax professional or financial advisor to ensure compliance with tax laws and optimize tax savings.