Tax Benefits on Home Loans For Financial Year 2022–2023

Every year, several people book their new homes with the help of a Home Loan. While a Home Loan harnesses your dream of buying a new house, it also gives you an opportunity to be eligible for multiple tax benefits.

The Government of India provides Home Loan tax benefits under the Income Tax Act of 1961. So, if you are already servicing a Home Loan or planning to borrow in the future, it is vital to be aware of all the Home Loan tax benefits as it will significantly reduce your tax outgo and help you save more.

Read on to learn more about tax benefits on Home Loans.

 

Tax benefits on Home Loan

A Home Loan is eligible for tax deduction under Section 24b, 80EE, 80EEA, and 80C of the IT Act. Let’s get to know more in detail.

1: Avail tax deduction of up to INR 2 lakh under Section 24b of the IT Act for interest paid on a Home Loan. To be eligible, the conditions are as below:

• You must have taken the Home Loan for purchase or construction or repair, or reconstruction.

• The deduction is available for rented & self-occupied property.

• If it is a self-occupied property, the limit may be reduced to INR 30,000 in case of following situations:

  1. If the loan is borrowed before 1^st April 1999 for any purpose 

  2. If the loan is borrowed after 1^st April 1999 for any purpose other than construction or acquisition

  3. If the home construction is not completed within 5 years

• The tax deduction can be claimed after the construction is completed.

 

2: Tax deduction on interest paid on Home Loan in the pre-construction period

Pre-construction interest is the interest paid while the property is still under construction. If you have purchased a property that is under-construction, you can claim deduction on Home Loan interest only after the completion of the construction as per Section 24 of the IT Act:

• Pre-construction period interest can be claimed as deduction in five equal instalments starting from the year in which the construction of the property is complete.
• The maximum you can claim is INR 2 lakh under Section 24.
 

3: Tax deduction of up to INR 1.5 lakh on the principal component of your Home Loan EMI under Section 80C of the IT Act. Below are the conditions:

• You must not sell the house within 5 years of possession.
• In case you sell the home before 5 years, the deduction you claim gets added back to your income in the year the sale was made.
 

4: Tax deduction of up to INR 1.5 Lakh on stamp duty and registration charges under Section 80C of the IT Act.

• The tax deduction for stamp duty and registration charges can be claimed only in the year the said expenses are incurred.

 

5: Tax deduction for a Joint Home Loan

A Joint Home Loan with a spouse or any other immediate family member can help you avail a larger tax benefit. Below are the details:

• Both borrowers can claim a tax deduction for Home Loan interest up to INR 2 lakh each.
• Avail tax deduction of up to INR 1.5 lakh on principal repayment under Section 80C of the IT Act.
• The loan borrowers must be co-owners of the property.
 

Key Takeaways:

• A Home Loan not only helps to make your dream home come true but also helps to reduce your tax liabilities.
• Knowing tax benefits on a Home Loan is one of the best ways to maximise your savings.
• You can start claiming the benefits every year when you file your Income Tax Returns (ITR)

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