September 26, 2022

World Trades

Finance Blog

How Do Home Loans Help in Saving Taxes?

3 min read

A home loan allows you to have a roof over your head at all times. It allows you to live in a house that you like without having to pay a hefty amount in one go. There are also several provisions under the Income Tax Act of 1961 that help you save taxes through your home loans.

In the Union Budget of 2022, Finance Minister Nirmala Sitharaman has proposed an extension of the current deadline to 31st March 2024, for availing of any additional deductions on the interest paid on home loans. The deduction is applicable to all home loans that have been sanctioned till 31st March 2022.

A home loan allows you to get the house of your dream, but it is also an extremely expensive purchase. Every year that you are paying for your home loan, you can avail the tax benefits for those financial years. Ensure that you choose the right form from the different types of ITRs (Income Tax Returns) while filing your return. Read further to understand how home loans can help you in saving taxes:

Tax benefits on home loan

There are mainly three tax brackets where you can get tax benefits from a home loan as per the Income Tax Act, 1961. Section 24, where the maximum limit of deduction is up to Rs 2,00,000 per annum. Section 80C, where the maximum limit of deduction is up to Rs 1,50,000 per annum. Lastly, Section 80EE, where the maximum limit of deduction is up to Rs 50,000 per annum. You can use an income tax calculator to get an estimate of the tax deductions you get on home loans.

Tax benefits from a home loan under Section 80C

Section 80C provides deductions regarding the principal amount of the home loan. Here are the deductions provided:

  • Self-occupied and let-out properties, you can avail of a deduction of up to Rs 1,50,000 annually from the taxable income. This deduction is claimed on the basis of the principal repayment of the home loan.
  • The taxpayer can also include the stamp duty and registration charges while claiming deductions. However, both these charges are allowed to be claimed only once.
  • For claiming a deduction under 80C for the principal amount of the home loan, it is essential that the construction of the home is completed.
  • The taxpayer claiming the deduction cannot sell their house within 5 years of possession.
  • If a taxpayer has claimed the deduction and he/she sells the house within 5 years, the deduction claimed previously will be reversed. The amount will also be added to the income for the year in which the house was sold. Do take your advance tax into consideration while filing the claim.

Tax benefits from a home loan under Section 80EE

Section 80EE offers deductions on the interest component of the home loan. Here are the deductions you can get:

  • You can get tax benefits of up to Rs 1,50,000 on the interest paid on a home loan in a given financial year.
  • The deduction can be claimed over and above the existing exemption of Rs 2,00,000 that a taxpayer gets under Section 24(b).
  • The property value needs to be less than Rs 45,00,000.

New updates on tax benefits on home loans

When you are doing your taxes, selecting from the different types of ITRs, and filling out the forms, it is important to stay updated with the recent tax reforms. There have also been some recent updates regarding tax implications on home loans as per the Union Budget of 2022-23. Here are the key pointers:

  • A new tax exemption was proposed for the Affordable Rental Housing Projects. This was done in order to promote and support migrant workers by making affordable rental housing easily available for them.
  • The eligibility tenure for claiming an additional deduction on the interest of the home loan of Rs.1,50,000 paid for buying an affordable house has been extended to 31st March 2022.
  • The eligibility period for claiming a tax holiday for affordable housing has also been extended by one more year. Now, the new deadline is 31st March 2022.
  • A noteworthy mention was the allocation of Rs 48,000 crore towards the Pradhan Mantri Awas Yojana (PMAY).

A home loan is a long-term liability that allows you to fulfil one major goal in your life. When you are doing your taxes, use an income tax calculator to get an estimate of the benefits you will receive from home loans.