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Guide to Home Loan Deductions in ITR

Maximize Your Tax Benefits: A Guide to Home Loan Deductions

Here’s a comprehensive guide on how to maximize your savings through home loan deductions in your Income Tax Return (ITR).

Buying a home is not just a significant life milestone but also a substantial financial investment. To ease this financial burden, the Indian government provides various tax benefits on home loans, allowing homebuyers to save significantly on their tax outgo. Understanding and claiming these deductions effectively can make a notable difference in your finances. Here’s a quick guide on how to maximize your savings through home loan deductions in your ITR.

Deduction on Home Loan Interest Paid (Section 24)

Claiming a deduction on the interest paid on your home loan is a significant tax benefit that you can avail of. Under Section 24(b) of the Income Tax Act, you can claim a deduction of up to Rs. 2 lakh per annum on the interest paid on a home loan if the property is self-occupied.

In case the property is let out (rented), there is no limit on this deduction. However, it is important to note that the total loss that can be offset against other sources of income is limited to Rs. 2 lakh in a financial year.

Deduction on Principal Repayment (Section 80C)

The principal portion of your home loan repayment is eligible for a deduction under the Income Tax Act. This means that a portion of the amount you repay towards the principal can be deducted from your taxable income.

Section 80C allows for a deduction on the principal repayment of your home loan. You can claim a deduction of up to Rs 1.5 lakh per annum under this section, which includes other investments such as PPF, ELSS, and life insurance premiums. Therefore, It is important to carefully plan your investments and loan repayments to make the most of the Section 80C limit and optimize your tax benefits.

Additional Deduction for First-Time Homebuyers (Section 80EE)

First-time homebuyers are entitled to an additional deduction on the interest paid on home loans under Section 80EE. This deduction allows an additional Rs. 50,000 per annum, over and above the deductions under Section 24(b) and Section 80C.

To qualify, the loan amount must not exceed ₹35 lakh, and the property’s value should be within ₹50 lakh. Also, the loan must be sanctioned between April 1, 2016, and March 31, 2017.

ParticularsSection 80EE
AvailabilityFirst time homebuyers
Loan sanctioned01-04-2016 to 31-03-2017
Max. deduction allowed on interest paidRs.50,000
Loan Amount LimitRs. 35 Lakh
Property Value LimitRs. 50 Lakh

Further Benefits for Affordable Housing (Section 80EEA)

For home loans sanctioned between April 1, 2019, and March 31, 2022, under the affordable housing scheme, an additional deduction of ₹1.5 lakh on the interest paid is available under Section 80EEA.

To be eligible, the stamp duty value of the property should not exceed ₹45 lakh, and the taxpayer should not own any residential property as of the date of loan sanction.

Recommended Read: How to file ITR online for Salaried?

Deduction for Joint Home Loan

In the case of a joint home loan taken with a family member, both co-borrowers can claim deductions separately. Each co-borrower is eligible to claim a maximum of Rs. 2 lakh for the interest paid under Section 24(b) and up to Rs. 1.5 lakh for the principal repayment under Section 80C, as long as they are co-owners of the property. This arrangement effectively doubles the tax benefits and significantly reduces the financial burden on the family.

Note: It is important to remember that in order to claim the tax benefits individually, both co-borrowers must also be co-owners of the property.

Pre-Construction Interest

Interest paid during the pre-construction period of a property is also eligible for deduction. This interest can be claimed in five equal installments starting from the year in which the construction is completed or the property is acquired. The total deduction for pre-construction interest along with the regular interest should not exceed ₹2 lakh per annum for a self-occupied property.

Practical Tips for Maximizing Home Loan Deductions

Keep Accurate Records: Maintain meticulous records of your home loan statements and interest certificates provided by your home loan provider.

Plan Your Loan Tenure Wisely: Longer loan tenures might result in higher interest payments initially, allowing you to maximize your deductions.

Optimize Joint Loans: If taking a joint loan, ensure both borrowers are co-owners and are contributing to the loan repayment to claim maximum benefits.

Stay Informed and updated:
Tax laws and benefits can change, so keep yourself updated on the latest provisions and amendments.

Home loan deductions offer a strategic way to reduce your tax liability while facilitating the dream of owning a home. By understanding the various sections of the Income Tax Act and planning your finances accordingly, you can significantly enhance your savings. Make sure to utilize these deductions to their fullest potential, ensuring a smoother and more economical home-buying journey.

About Shubham Anand

Shubham Anand, the founder of TaxWinner.in, is a Chartered accountant, law graduate and personal finance & technology enthusiast. He loves writing about taxes, personal finance, tax planning, the latest technology, and much more. With a passion for technology and the intricacies of personal finance, he believes that financial literacy is the ultimate life hack.

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