Do keep in mind that for the current financial year, an individual can continue to opt for the old tax regime and claim tax exemptions such as HRA and various deductions under sections 80C, 80D etc. The individual also has the option to opt for the new tax regime which offers lower tax rate without any tax exemptions and deductions.
Here is a look at the all the tax benefits that an individual can get on home loan EMI payments if he/she has opted for the old tax regime.
1. Deduction on repayment of principal amount of home loan
The EMI paid by you has two components – principal repayment and interest paid. The amount repaid as principal component in the EMI can be claimed as a deduction under section 80C of the Income-tax Act, 1961 for self-occupied property.
Do keep in mind that if you have a second home which is empty or your parents are living in that house, then that second house will also be considered as self-occupied house. Abhishek Soni, CEO & Founder, Tax2Win.in, an ITR filing website says, “If you have a home loan going with both the houses, then you are eligible for deduction on the principal amount repaid on both the home loans for maximum up to Rs 1.5 lakh.”
If you have rented out your second house, then it will be called ‘Let out property’. “Do keep in mind that the deduction is available under section 80C in case of let out property as well,” adds Soni.
Section 80C deduction can also be claimed for the stamp duty and registration charges paid at the time of buying a house.
2. Deduction on interest paid on a housing loan
Apart from deduction on the principal amount repaid on home loan, a tax payer can also claim deduction on the interest paid on the home loan. Deduction on the interest paid on a home loan is available under section 24 for maximum up to Rs 2 lakh in a given financial year in case of self-occupied property. Amount of interest payment exceeding Rs 2 lakh will neither be carried forward nor be adjusted against any other income head such as capital gains, salary etc. in case of self-occupied property.
If you have two houses and your second house is empty or occupied by your parents, then interest paid on home loan taken for the second house will also be covered under section 24. Do keep in mind that the total deduction available on the interest paid on home loan for both the houses should not exceed Rs 2 lakh in a financial year.
Soni says, “In case of Let out property, there is no limit on the maximum interest that can be claimed. However, the loss that will be adjusted against other income heads such as salary etc. cannot exceed Rs 2 lakh in a financial year. The remaining loss under the head ‘Income from house property’ can be carried forward for 8 successive years to be adjusted against the income from house property only.”
3. Extra deduction on buying an affordable house
If you have bought a house under the affordable housing category, then an additional deduction is available on the interest paid on home loan taken for buying that house. This deduction can be claimed under section 80EEA for maximum of Rs 1.5 lakh in a financial year. It is available over and above the deduction under section 24 for maximum of Rs 2 lakh. Thus, a tax payer is able to claim a deduction of up to Rs 3.5 lakh in a financial year in case of buying an affordable house.
Do keep in mind that same amount cannot be claimed twice under two different sections. For instance, if you have interest paid amount of Rs 1.4 lakh in financial year on a home loan, then deduction can be claimed either in under section 24 or in section 80EEA.
To claim this, there are certain conditions that must be satisfied which are as follows:
a)Housing loan must be taken from a financial institution such as bank or housing finance company for buying a residential house property;
b)The home loan must be taken between April 1, 2019 and March 31, 2021;
c)The stamp value duty of the house property should not exceed Rs 45 lakh;
d)The taxpayer should not own any residential property as on the date of sanction of the loan; and
e)The individual taxpayer should not be eligible to claim deduction under the existing section 80EE.
Budget 2021 has proposed to extend the timeline for availing the home loan by another year for claiming additional deduction on interest payments on home loan to March 31, 2022 from current deadline of March 31, 2021.
4. Deduction under section 80EE
This deduction was reintroduced in FY 2016-17 for first-time home buyers availing home loans. Tax payers who have taken a home loan in FY 2016-17 were allowed to claim additional tax deduction of up to Rs 50,000 under Section 80EE. Currently a home loan borrower paying interest on the loan can claim deduction of interest so paid from his/her gross total income up to a maximum of Rs 2 lakh per annum under Section 24. The deduction of Rs 50,000 introduced in Budget 2016 is over and above this limit of Rs 2 lakh.
To claim this deduction, certain conditions are required to be met which are as follows:
a) The additional deduction with respect to interest on loan taken will be applicable only for residential house property.
b)It’s only for first-time home buyers.
c) The maximum additional benefit is capped at Rs 50,000 a year.
d) The value of the house for which loan is taken cannot exceed Rs 50 lakh.
e) The loan amount cannot exceed Rs 35 lakh.
f) The loan has to be sanctioned between April 1, 2016 and March 31, 2017.
Although this tax benefit is not available for new home loans taken after April 1, 2017, however, if you have already availed a home loan in FY 2016-17, then you can claim this deduction until you have fully repaid the loan.
So, all home loan related deductions put together can help you help you get a maximum deduction of Rs 5 lakh (Rs 2 lakh u/s 24, Rs 1.5 lakh u/s 80C and Rs 1.5 lakh u./s 80EEA) if it meets the specified conditions. If you are planning a to buy a new house you can plan your purchase in such a way that your loan helps you get maximum deduction.