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Home Loan Tax Benefit 2021

Housing Loan Interest Deduction Jul 2021

Last Updated 25th Jul 2021

  • Under Section 80C, you can claim deduction upto ₹ 1.50 Lakh for the principal repayment done in the financial year.
  • Under Section 24B, you can claim deduction for upto ₹ 2 Lakh for the accrual and payment of interest on home loan.
  • Under Section 80EEA, you can claim deduction for upto ₹ 1.50 Lakh for the interest payment of home loan availed during the financial year.
  • Under Section 80EE, you can claim an additional deduction of up to ₹ 50,000 for the interest payment of home loan, if you have availed home loan for amount less than ₹ 35 Lakh and the value of the property is within ₹ 25 Lakh.
  • In case of joint home loan, each borrower can claim deduction of principal repayment (section 80C) and interest payment (section 24b) if they are also the co-owners of the property.
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Housing Loan Tax Benefit

Tax BenefitsOn Principal Repaid On Interest Paid
First Home – Self Occupied Actual principal repaid subject to a maximum of ₹ 1.50 Lakh can be claimed as investment eligible for tax deduction under section 80C.
  • Tax deduction upto ₹ 2 Lakh if you complete the construction within 5 years.
  • Tax exemption of ₹ 30,000 if the construction exceeds 5 years.
  • Additional deduction of ₹ 1.50 Lakh for purchase of affordable houses of up to ₹ 45 Lakh .
First Home – Rented/ Vacant (deemed to be let out property) Upto ₹ 1,50,000 eligible for tax deduction under Section 80 C. The deduction is available only if the property owner is staying in a different city for work.
  • Exemption on interest is capped at lower of two, a) ₹ 2,00,000 or b) actual interest paid for all properties owned by a taxpayer.
Second Home or Additional PropertyNone
  • Exemption on interest is capped at lower of two, a) ₹ 2,00,000 or b) actual interest paid for all properties owned by a taxpayer
Under Construction Property None
  • The interest paid can be claimed in equal parts in five financial years post completion or handing over of property within the overall annual limit of ₹ 2 Lakh.

Current Housing Loan Tax Exemption

You can claim home loan tax exemption for home loan interest under various conditions as mentioned below:

  • You can claim a maximum of ₹ 2 Lakh in case your property is self-occupied.
  • In case you have rented out the property, then you can claim the actual amount of interest accrued on your home loan without any limit.
  • In case of a joint home loan where the co-borrowers are also co-owners, the deduction is available up to the maximum limit for each one.
  • The maximum limit of ₹ 2 Lakh is applicable in case of the under-construction property only if the construction is complete within 5 years from the financial year in which the loan is availed. If not, then the applicable deduction is limited to ₹ 30,000.

Section of the Income Tax Act that Provides Tax Rebate on Home Loan

SectionsTax Benefit ComponentDeduction Limit
Sec 80 CPrincipal Repayment₹ 1.50 Lakh
Sec 24Interest Repayment ₹ 2 Lakh
Sec 80 EEAdditional Tax Benefit on Interest Payment for First Time Borrower₹ 50,000

How to Claim Home Loan Tax Benefit Under Section 80C?

You can claim income tax benefit on home loan under Section 80 C by following the steps as mentioned below:

  • The tax benefit under section 80C can be claimed only while filing the ITR.
  • At the time of entering the details in your ITR form, make sure you have entered the correct values in the various income heads as applicable to you.
  • Next, in the section of deduction under section 80C calculate the tax deduction you want to claim.
  • Since section 80C includes various other deductions as well like, LIC premium, contribution to the provident fund. You need to calculate how much of all the deductions available under the section you can claim.

Home Loan Tax Benefit under Section 80EE

To claim an additional income tax exemption on housing loan you need to fulfill the following eligibility criteria:

  • The tax benefit available under section 80EE of Income Tax Act is available on home loan sanctioned between 1st April 2016 to 31st March 2017.
  • To claim 80EE deduction, the borrower should not own any house on the date of loan sanction.
  • The deduction available under section 80ee is subject to a maximum limit of ₹ 50,000.
  • You can claim tax deduction under Section 80EE of Income Tax Act on the home loan interest.
  • The deduction is available for a home loan of ₹ 35,00,000 and below. Also, the value of the property should not exceed ₹ 5 Lakh.

Tax Benefit under Section 24B

As per section 24B of the Income Tax Act, you can claim deduction on the interest of the home loan, which is availed either for the purpose of constructing a new house or for the purchase of a residential property.

The deduction on home loan interest is allowed on an accrual basis. Thus, you can claim a home loan deduction for the interest amount for the year, whether you have paid till now or not.

Income Tax Benefit on Home Loan for Owning Second property

If you have more than one property, and both are self-occupied, then only one will be considered as self-occupied for the purpose of calculating tax benefit on home loan and income from house property. You have the option to choose either of the property as self-occupied to claim maximum tax benefit.

The tax benefit available for self-occupied property for interest on a home loan is a maximum of ₹ 2 Lakh under section 24(b), while for lent out property or deemed to be lent out, the deduction is available for actual value without any limit.

Tax Benefit on Home Loan under Construction Property

For the property that is still under construction, you can claim the following tax rebate on home loan

  • Deduction for principal repayment for up to ₹ 1.50 Lakh.
  • The deduction for interest amount can be claimed in five equal installments after the construction is complete within 5 years from the financial year in which the home loan is availed.

If the construction of property does not get completed within 5 years from the year in which the loan is availed, then the deduction available for the interest on the home loan will be available only upto ₹ 30,000.

What are the Tax deductions on Joint Home Loan

In the case of a joint home loan, each borrower can claim a tax deduction if they are also the co-owners of the property. One can claim upto ₹ 2 Lakh and ₹ 1.50 Lakh on Interest Payment and principal amount, respectively.

HRA and Tax Exemptions

If you have availed a home loan and are also staying in a rented house you can claim both; tax benefit on home loan and House Rent Allowance deduction. However, an important aspect you need to note here is that you can claim the HRA benefit only if you live in a rented house. You can claim HRA deduction up to lower of the following three:

  • 50% of your salary in the case of metro cities and 40% in the case of non-metro cities.
  • Actual HRA received.
  • The actual rent paid during the year minus 10% of your salary.

How To Claim Tax Benefit on Home Loan?

You can claim tax benefit on your home loan by following the steps as mentioned below:

  • Calculate the tax deduction of interest on a home loan you have to claim.
  • Next, you can submit your home loan interest certificate to your employer, so that the deduction can be adjusted with TDS.
  • Otherwise, you can file the ITR yourself and submit the certificate as required.
  • For self-employed, submitting the certificate is not required. However, you should keep it with you as it can be asked by the IT department.

FAQs

How do I claim tax benefits on the home loan?

You can claim tax benefits on a home loan either while filing your ITR or submitting the home loan interest certificate to your employer. Home loan tax benefits can be availed on first home purchases on principal payments.

How much of a home loan is tax-deductible?

You can claim a deduction of up to ₹ 1.50 Lakh for principal repayment and up to a maximum of ₹ 2 Lakh for interest on home loan in a financial year.

Is Home Loan good for tax benefit?

Yes, the government wants you to take the loan and buy your own house. You can claim a deduction for principal repayment as well as for interest on your home loan. The principal deductions can be availed only on first home purchases, whereas interest deductions can be availed on second home purchases and under construction property as well.

Is it worth taking a home loan for tax benefits?

Yes, a home loan allows you to avail tax benefits on both interest payment and principal amount of home loan. You can avail a maximum tax deduction of upto ₹ 7 Lakh on your home loan.

How is tax exemption on home loans calculated?

You can calculate the tax exemption on home loans by using an online home loan tax benefit calculator. Simply enter values like loan amount, principal amount and interest paid, property type and you can know the amount of home loan deduction. Calculating and determining tax benefits on home loans is efficient for planning expenses.


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