Income Tax Rebate on Home Loan: A Detailed Overview
Rajesh Kumar Kar- 5 days ago
- 6 min read
Nowadays, having a home may be a significant accomplishment, particularly when real estate prices are skyrocketing. However, the Indian government is encouraging people to invest in real estate through a number of initiatives. Home loans income tax rebates are one of the programs. Section 80C allows you a tax rebate when you apply for a home loan. Over time, this deduction significantly lessens your financial burden. Let's read more about the income tax rebate on home loans in this article.
Table of Contents
Repayment Components of a Home Loan
You pay the Equated Monthly Instalment (EMI) for two main loan components on borrowing a home loan:
Principal
Interest
These components are subject to varied tax rebates from home loans, and their tax deductions fall under separate sections of the Income Tax Act.
Income Tax Rebate on Home Loan
The following table highlights different sections of the Income Tax Act that provide a rebate on home loans in India:
Section | Component of the Home Loan | Maximum Rebate |
Section 80C | Deduction on principal amount | Rs. 1.5 Lakh |
Section 24(b) | Deduction on the interest amount | Rs. 2 Lakh |
Section 80EE | Deduction for first-time buyers | Rs. 50,000 |
We will now explain each of these sections in detail.
Income Tax Rebate on Home Loan under Section 80C
Rebate on Principal
Section 80C allows a deduction for the principal component on the house loan EMI paid per annual. Up to Rs 1.5 lakh is the maximum you can claim. However, this is conditional to the house property not being within five years of occupancy. If not, your income in the year of sale will be increased by the previously claimed deduction.
Rebate on Stamp Duty and Registration Charges
Under Section 80C, apart from the deduction for principal repayment, stamp duty and registration fees can also be claimed as a rebate, up to a total of Rs 1.5 lakh.
Rebate on Joint Home Loan
Each loan holder is allowed up to Rs 2 lakh in house loan interest and up to Rs 1.5 lakh in principal repayment as per Section 80C from their tax returns in case of joint loans. To claim this rebate, they should be co-owners of the loaned property. Therefore, a larger tax benefit may be available if a family member is a joint borrower for a home loan.
Income Tax Rebate on Interest on Home Loan under Section 24(b)
Section 24(b) of the Income Tax Act provides a rebate on the interest paid on the home loan. If the house is built or purchased within five years, you can deduct up to Rs. 2 lakh in taxes from your gross income each year for a self-occupied residence. Additionally, the loan must be taken out solely for purchasing or building a self-occupied home, rather for renovation, repair, or renewal. You can only deduct interest on home loans for purchase, construction, repair, renewal, or reconstruction up to Rs. 30,000 per year if the construction or acquisition period lasts longer than the allotted time.
Interest Paid During the Pre-Construction Phase
Let's look at how the Income Tax Act permits you to claim a deduction for interest paid prior to the completion of construction. This is known as pre-construction interest. For example, an under-construction property is bought, but the owner has not yet moved in. However, when they are making EMI payments, the rebate can be claimed only on completion of construction. Tax rebate on interest paid prior to construction will be available in future years, but with certain restrictions. Interest paid in this case may be deducted in five equal installments after the completion of the property. It may also be claimed in the same year. The upper limit is still Rs 2 lakh, though.
Income Tax Rebate on Home Loan under Section 80EE
Homebuyers can claim an additional income tax rebate on home Section 80EE up to a maximum limit of Rs 50,000. The following conditions determine whether they claim this deduction:
The value of the property in question should not exceed Rs 50 lakh, while the loan amount should not be over Rs 35 lakh.
The loan approval timeline should be between April 1, 2016, and March 31, 2017.
This is applicable only to a first-time home owner who owned no other residences on the day of loan approval.
Additional Home Loan Income Tax Rebate under Section 80EEA
The following requirements must be fulfilled in order to claim the additional deduction under Section 80EEA for homebuyers, which is up to Rs 1.5 lakh, as part of Budget 2019:
The property's stamp value should not exceed Rs 45 lakh.
The loan approval timeline should be from April 1, 2019, to March 31, 2022 (extended from March 31, 2021).
The borrower must be a first-time home buyer and not have any other homes on the date of loan approval.
The borrower must not be eligible to a home loan rebate under Section 80EEA.
Tax Rebate on a Second Home Loan
In the 2019 Union Budget, the government provided additional benefits for home property investment. Previously, notional rent was calculated and taxed as income because only one property could be considered self-occupied and the other was considered rented; however, even a second property can now be regarded as a self-occupied property. You can take advantage of the aforementioned tax advantages if you take out a second home loan to buy another property, but the total amount of deductions is limited by the aforementioned restrictions.
Tax Rebate on Home Loan and New Tax Regime
The rebate on home loans is available under the old tax system since there are no limitations on deductions; Conversely, under the new regime, these advantages are limited. Here are the factors to consider:
No rebate can be claimed under Section 80C for the principal repayment, stamp duty, registration fees, or Sections 80EE and 80EEA.
Self-occupied property is not eligible for the rebate under section 24(b) for the payment of the home loan's interest component.
However, a rebate under section 24b is available for a rental property.
In case the net revenue from rental property leads to a loss, the loss can be offset against the profit from another home. However, it cannot be offset against other income sources, such as salaries.
Conclusion
With so many options for tax savings with a house loan, first-time borrowers frequently find it difficult to maximize the deductions that are available. Therefore, it is crucial to pick a lender wisely. Select a reputable lender who can provide comprehensive advice on home loan tax exemption regulations. Besides helping you to realise your dream of owning a home, this will result in significant tax savings.
Frequently Asked Questions
How much tax rebate do I get on a home loan?
The following lists the tax refund on a home loan according to various parts of the Income Tax Act.
Section 80C: Up to Rs 1.5 lakh under
Section 24(b): Up to Rs 2 lakh under for a self-occupied residence (no limit for a rental property)
Who can claim a tax rebate on home loans?
Home loan tax rebate is only available to the property's owners. Each borrower may claim a deduction for house loan interest based on their ownership ratio if the loan is taken out jointly with a spouse.
Can a tax rebate be claimed by my spouse when we buy the house jointly?
Your spouse may be able to take distinct deductions on their IT returns if they work and receive income from another source. You can deduct up to Rs 1.5 lakh from your total income for the principal component on your home loans and up to Rs 2 lakh for the interest related to those loans under Section 80C.
Can you claim an income tax rebate under both 80C and Section 24?
Yes, you are eligible to claim rebates under both the sections. These are rebates for stamp duty and principal payments under Section 80 and rebates for home loan interest under Section 24.
Are there any tax rebates on second home loans?
Yes. The second residence will be regarded as self-occupied if the first is occupied and the second is unoccupied. The interest paid on both residences can be deducted from taxes in this situation. But it cannot exceed Rs 2 lakh. Moreover, rental revenue from the second property should be reported when the first is self-occupied and the second is rented. Thereafter, you can deduct the regular 30% deduction, unlimited house loan interest, and paid municipal taxes.
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