Agreed, availing a home loan is a long-term commitment. However, it also provides an opportunity to reduce your tax burden. There are many tax deductions on a home loan that can benefit you significantly. Being aware of such tax deductions can help you make informed decisions while availing home loans. Ahead are some tax deductions on housing loan that you can claim from your income to reduce your taxability.
Tax deductions on principal
The home loan EMI includes two components – interest and principal. Under section 80C of the Income Tax Act, 1961, you can claim a tax deduction of up to Rs 1.5 lakh on the principal repayment. This tax deduction is available on more than one house up to Rs 1.5 lakh. Therefore, if you have a second house, which is empty or is occupied by your parents, you can claim a deduction for both of the houses. Tax deduction on principal and interest repayment is also available on stamp duty and registration charges paid during a house purchase.
Tax deduction on interest
Under section 24(b) of the Income Tax Act, 1961, you can claim a tax deduction from your income on interest repayment of up to a maximum limit of Rs 2 lakh in a given financial year. If you have a second house, which is empty or occupied by your parents, you can claim this deduction for the second house as well. Moreover, if the house is let out, there is no upper limit to claim this deduction.
Tax deduction on first home loan
If you are a first time homebuyer, you can also claim an additional tax deduction under section 80EE of the Income Tax Act, 1961. Under this section, you can claim an additional tax deduction of up to Rs 50,000 on the interest repayment. This deduction is over and above the maximum limit of Rs 2 lakh. However, there are certain conditions you must meet to get this deduction. It is only available for residential house property, the cost of which does not exceed Rs 50 lakh. The loan amount should be below Rs 35 lakh. Moreover, it is available only for a specified period.
Tax deductions on home loans for under-construction property
You can get tax benefits on home loans taken for under-construction property too. The interest you pay for the pre-construction period is allowed as a deduction in five instalments after the year of completion. However, to claim this deduction, the construction of the house should be completed in five years. If you move into the house before five years, the maximum limit of the tax deduction you can avail is Rs 2 lakhs.
These tax deductions are available for all the co-applicants in case of a joint home loan, helping you save higher taxes if you avail one with your family. Claim such tax benefits when you apply for home loan and save money while you move into your new home.