A housing loan is a secured financial solution that not only helps you purchase a property but also provides tax benefits available under the Income Tax Act, 1961. This guide explores the key deductions available under Sections 24(b), 80C, 80EE, and 80EEA of the old tax regime to help you make the most of the tax benefits available on your housing loan in India.
Deduction Under Section 24(b) on the Home Loan Interest Paid
Section 24(b) pertains to the tax exemptions available on the interest paid on the home loan. For a self-occupied residential property, the maximum deduction permissible under Section 24(b) is up to Rs.2 Lakh per annum.
This deduction is applicable if the acquisition or construction of the home is completed within five years from the end of the financial year in which the loan was taken.
Deduction Under Section 80C on Principal Repayment
Section 80C allows deductions on the principal component of the housing loan. The maximum deduction allowed under this Section is up to Rs.1.5 Lakh per annum. This limit is inclusive of other eligible investments such as Provident Fund contributions, Life Insurance Premiums, and Equity-Linked Savings Schemes (ELSS).
The deductions under Section 80C can be claimed only after the construction of the house is complete and the completion certificate is issued. Additionally, the property should not be sold within five years from the end of the financial year in which possession was obtained.
Stamp duty and registration charges are also eligible for deduction under Section 80C but must be claimed the same year they are incurred.
Deductions for First-Time Homebuyers Under Section 80EE
Section 80EE provides an additional deduction to first-time homebuyers on the home loan interest paid. The maximum deduction allowed under Section 80EE is Rs.50,000 per annum.
To be able to claim this deduction, the housing loan must be sanctioned between 1 April 2016 and 31 March 2017. The sanctioned loan amount should not exceed Rs.35 Lakh and the property value should not be more than Rs.50 Lakh. To claim deductions under Section 80EE, the individual should not own any other residential property on the date of sanction of the housing loan. The deductions available under Section 80EE are over and above the deduction limit of Rs.2 Lakh under Section 24(b).
Deductions for Affordable Housing Under Section 80EEA
Section 80EEA aims to further incentivise affordable housing by providing an additional deduction on interest paid on a housing loan on residential properties. A maximum deduction of up to Rs.1.5 Lakh can be claimed under Section 80EEA, provided the loan was sanctioned between 1 April 2019 and 31 March 2022. The stamp duty value of the property must not exceed Rs.45 Lakh. Note that, you will not be able to claim any deduction under Section 80EE, if you claim deduction under Section 80EEA. If you are claiming deductions under Section 80EEA, you should not own a residential property on the date of sanction of the loan.
Availing of a housing loan not only helps you invest in long-term assets but also provides tax benefits. Understanding these deductions can help you maximise savings. You can also use an income tax calculator to calculate your savings before and after availing of a home loan. It is advisable to consult tax advisors to make optimal use of these benefits as per the latest regulations.
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