18 FEBRUARY, 2022

There are many benefits of availing a home loan. You get to purchase your dream home, you can repay in flexible tenures, and you can even get tax benefits. While the home loan interest rates are at an all-time low since the pandemic, it makes more sense to invest in house property now. Due to the low interest rates, it has become even easier to avail a home under affordable housing. Moreover, you must know that there is an additional tax benefit on home loans under affordable housing, which can be beneficial for you.


Here is a brief guide on the tax benefits under affordable housing and how it can benefit you. First, let's look at the tax benefits available on all home loans.


Tax benefits on home loan

You can claim a tax deduction from your taxable income on the amount paid for interest and principal repayment under the income Tax Act 1961.


  • Tax deduction on interest repayment

You can claim a tax deduction of up to Rs 2 lakhs on the interest repayment under section 24(b).


  • Tax deduction on the principal repayment

A tax deduction is available on the principal repayment of up to Rs 1.5 lakhs under section 80C. This deduction is also available for the stamp duty and registration charges on a house purchase.


  • Additional tax benefits on affordable housing

Under affordable housing, additional deductions have been provided for home loan borrowers under section 80 EEA. As per this section, if you buy a property priced below Rs 45 lakhs, you can claim an additional deduction on home loan interest payment for up to Rs 1.5 lakhs. This benefit is over and above the tax deduction available under section 24 (b). The additional benefit was announced in the July 2019 budget but has been extended until March 2022.


How will this deduction help you?

If you buy a house priced below Rs 45 lakhs, you can claim a double tax deduction for the home loan interest repayment under affordable housing. This means you can claim a tax deduction of Rs 3.5 lakhs (1.5 + 2 lakhs) on the interest repayment. However, you won't be able to use the entire tax benefit at once, as the interest rate is relatively low currently.  


For example, if you buy a house worth Rs 43 lakhs and take a loan for Rs 36 lakhs at an interest rate of 7%, you will get an EMI of Rs 27,912. Your total interest outgo for the entire year would be around Rs 2.52 lakhs. While you will get a total tax deduction of Rs 3.50 lakhs for the interest repayment, you will have only Rs 2.52 lakhs to claim as deduction. Therefore, you won't be able to claim the entire Rs 3.50 lakhs as a tax deduction. However, with the increase in home loan interest rates and interest outgo in future, you can reap the benefits of this additional deduction by claiming the entire amount.


With the availability of this additional deduction under section 80 EEA, you can claim the entire interest repayment as a tax deduction. It would be best to contact a tax expert to help you calculate the tax benefit under affordable housing. Alternatively, you can just use a home loan tax benefit calculator available on the Kotak Mahindra Bank’s website to compute your tax benefit.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.