Home Loan Tax Benefits FY 2024-25: Maximize Your Savings

In India, home loans provide substantial tax advantages as outlined in the Income Tax Act of 1961. These incentives aim to motivate individuals to invest in real estate by lowering their taxable income. Below is a summary of the main tax benefits associated with home loans:

Deduction on Interest Payment

Section 24(b) of the Income Tax Act in India provides for the deduction of interest on loans taken to buy, construct, or repair a residential property. Here are the key points regarding this provision:

Eligibility Criteria

• Loan Purpose: The loan must be taken for the purchase, construction, renovation, or repair of a residential property.

• Ownership: The taxpayer must own the property for which the loan is taken.

Deduction Limits

• Self-Occupied Property: If the property is self-occupied, the maximum deduction allowed on interest payment under Section 24(b) is ₹2,00,000 per financial year.

• Let-Out Property: For a property that is let out, there is no limit on the deduction of interest. All interest paid can be claimed as a deduction against rental income.

• If the property is both self-occupied and let out: If a taxpayer has one self-occupied property and another that is let out, the interest deduction limits and rules can apply differently based on the specific circumstances.

Time Frame for Deductions

• The deduction can be claimed for interest paid during the financial year, regardless of whether the loan was fully paid off or only partially serviced.

Additional Deductions

• If the loan is taken for construction, the interest paid during the construction period can also be claimed. However, this is capped at ₹2,00,000 in total, including the interest accrued during the construction phase.

Documentation

• Taxpayers are required to maintain proper documentation (like the loan agreement, payment receipts, etc.) to substantiate their claims for the deduction.

Important Notes

• The interest deduction is available only if the taxpayer fulfils the conditions outlined in the Income Tax Act and properly reports their income and expenses.

• This deduction can significantly reduce the taxable income of a taxpayer, leading to potential tax savings.

Deduction on Principal Repayment

Under the Income Tax Act in India, taxpayers can claim a deduction on the repayment of the principal amount of a home loan under Section 80C. Here are the key details regarding this deduction:

Eligibility Criteria

• Loan Purpose: The loan must be taken for the purchase, construction, or renovation of a residential property.

• Ownership: The taxpayer must have ownership or be in possession of the property for which the loan has been taken.

Deduction Limits

• The maximum deduction allowed under Section 80C for principal repayment is ₹1,50,000 in a financial year.

• This limit is inclusive of other deductions that fall under Section 80C, such as investments in the Public Provident Fund (PPF), National Savings Certificates (NSC), tax-saving fixed deposits, etc.

Conditions

• To avail of this deduction, the property should not be sold within five years of possession. If sold before this period, the deduction claimed in the earlier years will be reversed in the year of sale.

Time Frame for Deductions

• The deduction can be claimed for the principal amount repaid during the financial year.

Documentation

• Taxpayers must maintain proper documentation (like the loan statement, payment receipts, etc.) to substantiate their claims for deduction on principal repayment.

Important Notes

• The principal repayment deduction under Section 80C is available only if the loan is taken for residential property.

• Taxpayers should verify all conditions and ensure compliance with the rules laid out in the Income Tax Act to claim this deduction effectively.

Deduction for First-Time Home Buyers

In India, first-time homebuyers can avail of additional tax benefits under the Income Tax Act, particularly through Section 80EE and Section 80EEA. Here are the details regarding these deductions:

Section 80EE

• Eligibility – This section applies to individuals who are first-time homebuyers. A first-time homebuyer is defined as someone who does not own any residential property on the date of sanction of the loan.

• Deduction Amount – A maximum deduction of ₹50,000 on the interest paid on home loans can be claimed under this section.

• Loan Amount – The loan taken must not exceed ₹35 lakhs, and the property should not exceed ₹50 lakhs in value.

• Time Frame – The loan must be sanctioned in the financial year (FY) 2016-17 or thereafter. The deduction can be claimed for interest paid during the financial year.

Section 80EEA

Eligibility

• The deduction is available only to individuals who are first-time homebuyers. This means that the taxpayer should not own any residential property on the date of loan sanction.
• The eligibility is restricted to individuals, not Hindu Undivided Families (HUF) or other entities.

Deduction Amount – Under Section 80EEA, individuals can claim a deduction of up to ₹1,50,000 on the interest paid on home loans during the financial year.

Loan and Property Criteria

• The loan must be taken from a financial institution or a housing finance company.
• The stamp duty value of the residential property should not exceed ₹45 lakhs.

Time Period for Loan Sanction – The property loan must be sanctioned between April 1, 2019, and March 31, 2022.

Tax Advantages of Joint Home Loans

Taking a joint home loan can offer several tax advantages, which can make homebuying more financially appealing. Here are the key tax benefits of joint home loans:

Higher Deduction Limits on Interest Payments

When a home loan is taken jointly, both borrowers can claim tax deductions for the interest paid. Under Section 24(b) of the Income Tax Act, each borrower can claim up to ₹2 lakh per annum on the interest component of the home loan, provided the property is self-occupied.

Therefore, if two individuals (such as spouses or siblings) are co-borrowers, they can collectively claim a deduction of up to ₹4 lakh.

Principal Repayment Deductions

Under Section 80C, both borrowers can also claim a deduction up to ₹1.5 lakh each on the principal repayment of the home loan. This means that collectively, the couple can claim up to ₹3 lakh, assuming both are eligible and have paid the principal amount.

Increased Eligibility for Loan Amount

Since both incomes are taken into account when applying for a home loan, the combined income can increase the overall loan eligibility. This could allow the purchase of a property that might otherwise be unaffordable if a single income were considered.

Impact under New & Old Tax Regime

Under New Tax Regime	Under Old Tax Regime
By default if you are falling under new tax regime for FY 2024-25 then, there is no tax benefit when you are taking home loan for a self occupied house property.	When loan is taken for the purchase or construction of house, then it must be completed within 5 years.

Benefits under New Tax Regime

Only in rented house property (let out), interest deduction is allowed.

Benefits under Old Tax Regime

Section 24 – You can claim deduction on interest paid up to Rs. 2 lakh in a year. [It can be claim for self occupied property and no limit on the interest for let out property]

Section 80C – The maximum limit to claim deduction u/s 80C is Rs. 1.5 lakh which includes home loan principal, stamp duty, insurance premium, PF contribution etc.

Section 80EE – An additional deduction on interest up to Rs. 50,000 can be claim u/s 80EE.

Section 80EEA – An additional deduction on interest apart from section 24 can be claim in section 80EEA. The limit is up to Rs. 1.5 lakh.

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