Know your Tax Benefits on Home Loan (FY 2023-24)
Deduction for interest on a Home Loan
1. Your home loan has two components – Principal payment and interest payment.
2. You can avail yourself of a home loan with the sole purpose of constructing or
purchasing a house. However, the construction of your house (if own construction )
or possession in case of outright buy must be done within five years of the availing of
the loan, You can claim a deduction under your interest category of up to Rs.2 lakh
under Section 24.
3. The maximum deduction on interest paid for self-occupied houses is Rs.2 lakh. This
rule has been in effect from 2018-19 onwards.
4. However, if your property is a let out, then there is no limit on the interest you can
claim.
5. However, the maximum total loss under the heading "House Property" that may be
claimed is only Rs 2 lakh.
6. From the year when the house's construction is finished, you can claim this
deduction.
Deduction for interest paid on a home loan during the
Construction phase (Pre EMI Interest )
1. Pre EMI interest is eligible for a write-off under the Income Tax Act .
2. A deduction in 5 equal instalments commencing with the year the property is
acquired or construction is completed is allowed in addition to the deduction from
your residential property income that you would otherwise be qualified to claim.
3. The eligibility threshold remains at Rs.2 lakh.
4. For example, that you pay Rs.10,000 in interest each month on a home loan for
construction. In 2022, the house's construction was completed after two years.
Therefore, you cannot start making claims for the pre-construction interest of
approximately Rs.2.4 lakh until the construction has been finished in five equal
instalments starting in 2022. However, Section 24(b) caps the total interest
deduction at Rs.2 lakh, including interest from the current year plus interest from
prior projects.
Home Loan Tax Benefits under Section 80C
Principal Deductions
Section 80C deals with the principal amount deductions:
1. For both self-occupied and let-out properties, you can claim up to a maximum of
Rs.1.5 lakh every year from taxable income on principal repayment.
2. Stamp duty and registration charges may be included in it. However, it can be
claimed only once.
3. To claim it, you need to complete the construction of the property or must have
obtained possession first.
4. You should not sell your house within 5 years of possession to claim this deduction.
5. If you sell your house within 5 years after possession, any deduction claimed will be
reversed in the year in which you sell it. This amount will also be added to your
income for the year of sale.
Deduction for Joint Home Loan
If the housing loan is availed by two or more persons, each of them is eligible to claim a
deduction on the interest paid up to Rs.2 lakh each. Tax can be deducted on the principal
paid as well for an amount up to Rs.1.5 lakhs each. However, all the applicants should also
be co-owners of the property in order to claim this deduction. Therefore, a joint home
loan can give you greater tax benefits.
Home Loan Tax Benefits of Owning a Second Property
1. As per the current provisions, tax benefits are applicable on payable interest. You
can claim the entire paid interest amount.
2. It has been proposed that the second self-occupied home can also be claimed as a
self-occupied one to help borrowers save more on taxes.
How to Claim Tax Benefits on Home Loans?
Claiming tax benefits on a home loan is a simple process. Below are the steps to claim your
tax deduction.
Step 1: Calculate the tax deduction to be claimed.
Step 2: Ensure that the house is in your name or you are the co-borrower of the loan.
Step 3: Submit your home loan interest certificate to your employer to adjust the tax
deductible at source.
Step 4: In case you don't perform the above step, you would have to file the tax return by
yourself.
Step 5: In case you are self-employed, you are not required to submit these documents
anywhere. Just keep them handy in case the IT department raises queries in the future.
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