Tax Benefits of Home Loans

The home loan borrower enjoys Tax Benefits on both Interest payment & the Principal payment.

Under Section 24 of Income Tax Act 1961, the deduction of interest payable on the home loan is up to a maximum of Rs. 2,00,000.

Under Section 80(c) of Income Tax Act 1961, Principal amount for the repayment of loan along with other savings & investments is eligible for deduction up to a maximum limit of Rs. 1,50,000.

Tax Benefit on Home Loan: Section 24, 80EE & 80C

A very important criterion to be kept in mind while taking a Home Loan is the Tax Benefit on Home Loan. To explain the Tax Benefit on Home Loan, we would be dividing the Repayment of Home Loan into 2 components:

  1. Payment of the Principal Amount
  2. Payment of the Interest on Home Loan

As thepayment comprises of 2 different components, the tax benefit on home loan is governed by different sections of the Income Tax Act 1961.

Section 80C: Tax benefit on Home Loan (Principal Amount)

The amount paid as Principal Amount of Home Loan by an Individual/HUF is allowed as deduction under Section 80C of the Income Tax Act. The maximum amount allowed under Section 80C is Rs. 1,50,000. (Section 80C(2)(xviii))

This deduction under Section 80C is available on payment basis irrespective of the year for which the payment has been made. The Amount paid as Stamp Duty & Registration Fee and other expenses for the purpose of transfer of such property to the individual / HUF is also allowed as deduction under Section 80C even if the Assessee has not taken Loan.

(Prevention Clause: As provision of Section 80C(5) of Income tax Act, 1961, if the said house property will transfer before expiry of five yearfrom the end the financial year in which possession obtained, the benefit availed under section 80C(2)(xviii) shall be treated as income of individual in the year in which property get transfer.)

Section 80EE: Tax benefit on Home Loan (Interest Amount)

Additional Deduction allowed under this section is Rs. 50,000on interest payable on loan.

Condition of allowing deduction u/s 80EE:

Section 24: Tax benefit on Home Loan (Interest Amount)

Tax Benefit on Home Loan for payment of Interest is allowed as a deduction under Section 24 of the Income Tax Act 1961. As per Section 24, the Income from House Property shall be reduced by the amount of Interest paid on Home Loan where the loan has been taken for the purpose of Purchase/ Construction/ Repair/ Renewal/ Reconstruction of a Residential House Property.

The maximum amount allowed under Section 24 of a self-occupied property is subject to a maximum limit of Rs. 2 Lakhs.

Particulars Section 24 Section 80C Section 80EE
Tax Deduction allowed for Interest Principal Interest
Quantum of Tax Deduction allowed Self Occupied Property:Rs. 2,00,000 Rs. 1,50,000 Rs. 50,000
Purpose of Loan Purchase/ Construction/ Repair/ Renewal/ Reconstruction of a Residential House Property. Purchase / Construction of a new House Property Purchase / Construction of a new House Property
Restriction on Sale of Property Nil Deduction claimed would be reversed if Property sold within 5 years Nil

The above 3 Sections relating to benefits on Home Loans have been summarized as under:-

Particulars Maximum Quantum of Deduction (Rs.)
Section 24 Rs. 2,00,000/-
Section 80C Rs. 1,50,000
Section 80EE Rs. 50,000

Please Note:-

  1. The above deductions are allowed as per person and not as per Property. So in case you’ve purchased a property jointly and have taken a joint home loan, each person repaying the amount would be eligible to claim whole deduction separately.
  2. If you are living in a rented premise and are taking Tax Benefit of HRA Allowance, even then you can claim these benefit on home loan under Section 24, Section 80EE & Section 80C.

For claiming the above deductions, you would be required to furnish the statement provided by the lender clearly indicating the amount payable and paid towards Interest and Principal. After claiming the above deductions ofbenefits on Home Loan, the balance Income of an Individual would be taxed as per the Income Tax Slab Rates.