Tax Benefits on Home Loans: Section 24(b) and Beyond

For instance, a couple might have struggled to save for a house down payment. Finally, they leapt and borrowed money to purchase that house. Then they truly learned how costly paying for a home loan can be. By that time, fortunately, tax benefits available can alleviate the economic burden. The government, to encourage people to own homes, provides ample opportunities to save on taxes; one of the most important sections through which home loan interest can get lighter is Section 24(b). Let's look into how they can avail themselves of these tax breaks.

First, there is Section 24(b) of the Income Tax Act, under which one can get a deduction on the interest paid on home loans. This can bring some respite whether the property is self-occupied or rented out. In case one is residing in the property, one can claim a maximum deduction of ₹2 lakh per year on the interest. In case the property is rented or deemed to be let out, there's no upper limit on the interest that one can deduct.

However, the total loss allowable to be set off against other income from the property is limited to ₹2 lakh per year.

But there are a few conditions to keep in mind to avail of this deduction. For one, the loan must be used for buying, building, or renovating the property. When purchasing a self-occupied property, the property must be completed within five years of the fiscal year in which the loan was taken. Also, while the interest on the home loan is deductible, the principal repayment doesn't qualify under Section 24(b). Besides Section 24(b), there are many other ways you can claim deductions on your home loan. For instance, the principal repayment of your home loan offers a deduction under Section 80C. You can claim up to ₹1.5 lakh on the principal repaid in a financial year. This section also covers expenses like stamp duty and registration fees, but only if they're claimed in the same year they are paid. However, if you sell the property within five years, the deductions you've claimed will be added back to your income in the year of sale.

Now, one great bonus for first-time homebuyers is Section 80EEA. If you have purchased your first house, you can get an additional deduction of ₹1.5 lakh on the interest you pay on your home loan. This is over and above the ₹2 lakh available under Section 24(b) as mentioned earlier. Well, there are a few conditions for this benefit.

The property should not be more than ₹45 lakh in stamp duty value, and the loan must have been sanctioned between April 1, 2019, and March 31, 2022. You also need to not own any residential property when the loan is sanctioned.

So, how can you maximize these tax benefits? Well, use all the available sections.

For example, if you have paid ₹3 lakh as interest on the home loan, you can claim ₹2 lakh under Section 24(b) and the remaining amount under Section 80EEA, if applicable. In the case of a joint home loan, both co-borrowers can claim the deduction separately, meaning both can claim the interest deduction under Section 24(b) and the principal repayment under Section 80C. This can effectively double the amount of tax savings. Remember, interest payable during the pre-construction period is also deductible under Section 24(b). Interest paid during this period can be claimed in five equal instalments starting from the year the construction of the property is completed. In the case of a second home loan, you are in luck as Section 24(b) gives the same tax benefits for it as it does for the first home loan. You can thus claim a deduction on the whole interest paid on the second home loan, and the principal repayment is also eligible for a deduction under Section 80C.

For those of you who let out a property, the rental income is liable to be taxed and added to your overall income. You can, however, claim a deduction on the interest paid on the home loan. Over and above that, you can also claim 30% standard deduction on the rental income received by you.

When it comes to filing your taxes, make sure you keep all the necessary documentation. This would include interest certificates from the lender, property registration documents, and any other documents about your home loan. While filing your ITR, the interest paid on the home loan shall be added to the "Income from House Property" and the aforementioned deductions shall fall under "Deductions." If you happen to be confused about anything, in such cases, it will always be good to hire a tax advisor, primarily when you have multiple properties, or the arrangements are big and complicated.

Conclusion

The whole thing boils down to the fact that the tax benefits accruing to home loans, especially under Section 24(b), will drastically bring down the cost of owning a house. The deductions available under Sections 24(b), 80C, and 80EEA make homeownership way cheaper. These tax breaks can be big deals in financial planning; hence, it is worth taking the time to maximize them.

In the next chapter, we show how to file your tax returns online, guiding you through the steps in such a way that it can be as easy as possible. So, stay tuned!