Purchasing a house is a goal of almost every individual and the government of India encourages its citizens to make this investment. As most people cannot afford to buy a house outright and require taking a Home Loan for this purpose, there are various tax benefits provided for taking a home loan. The various deductions and tax benefits on home loans have been listed below:
- Home Loan Interest Paid (Post-Construction): The Equated Monthly Installments (EMI) paid on a home loan have two components, the principal amount and the interest. Section 24 of the Income Tax Act allows an individual to claim up to Rs. 2 laky as a deduction under the heading Interest Paid on Home Loan. This deduction can be claimed from the year in which the construction of the house is completed.
- Home Loan Interest Paid (Pre-Construction): If an individual purchases an under-construction property, the interest paid on the home loan can be deducted in five installments starting from the year in which the property is purchased. The maximum claim under this circumstance is capped at Rs. 2 lakhs.
- Principal Amount Paid on Home Loan: Section 80C allows for a maximum deduction of Rs.1.5 lakhs from the income of an individual for the payment of the principal amount of a home loan. In case, the individual sells the house within 5 years of claiming this deduction, the deducted amount will be added to the individual’s income in the year the property was sold.
- Stamp Duty and Registration Charges: Section 80C also provides a deduction on expenses incurred during registration of the property and the stamp duty paid, this deduction is also subject to an overall limit of Rs.1.5 lakhs under Section 80C.
- Joint Home Loans: If a home loan is taken jointly by multiple individuals, each individual can claim a maximum deduction of Rs. 2 lakhs on the interest paid on the loan and a maximum deduction of Rs.1.5 lakhs under Section 80C for a principal amount paid, stamp duty and registration charges.
- First-Time Home Buyers: A maximum deduction of Rs.50,000 is provided to first-time home buyers under Section 80EE of the Income Tax Act. This deduction is subject to the condition that the loan was sanctioned between April 1, 2016, and March 31, 2017, the loan amount is below Rs. 35 lakhs and the value of the property does not exceed Rs. 50 lakhs.