25 MAY, 2021

There is no doubt that purchasing a house is a costly affair. Sometimes even if you put all your savings together, you might not be able to buy the kind of home you always dreamt about. In such times, home loans could be a much-needed relief. Through home loans, you can purchase your dream home and comfortably repay it over a decade or two. One of the best aspects of taking a home loan is that you can save taxes while repaying the loan. Many tax benefits available on the home loan repayment help you reduce your tax liability and hence save money.

Check out home loan income tax benefits that you should know about.

Deduction on principal repayment

The EMI of a home loan consists of two components: the interest and the principal. The principal component of your EMI is can be claimed as a deduction from income under section 80C of the Income Tax Act, 1961 up to Rs 1.5 lakh for a self-occupied property. If you have one more self-occupied house, taken on loan, you can claim a deduction for that too. However, if you sell the property before the completion of 5 years of possession, this deduction would be added to your income in the year of sale.   

Deduction on interest repayment

The interest repayment of the EMI can be claimed as a deduction under section 24(b) of the Income Tax Act, 1961 up to Rs 2 lakh, if it is a self-occupied property. If it is a let-out property, there is no upper limit on this deduction. Moreover, the interest repayment of the second house (if self-occupied) will also be available for deduction within the maximum limit of Rs 2 lakh.

Also, keep in mind that while the house is under construction, deduction cannot be claimed on home loan interest. Once the construction is finished, only then you can claim this pre-construction interest.

Note: The second house would be called self-occupied if it is empty or is being occupied by your parents.

Additional deduction for first-time homebuyers

There is an additional deduction that you can claim if you are a first time homebuyer. If you have availed a home loan in the financial year 2016-2017, you can claim an additional deduction of income of Rs 50,000 under section 80EE. This deduction is available over and above the maximum limit of Rs 2 lakh on interest repayment of the home loan under section 24(b). However, there are certain conditions that you need to meet to claim the deduction under section 80EE:

  • You must have taken the loan between April 1, 2016, to March 31, 2017
  • The value of the house should not exceed Rs 50 lakh
  • The value of the loan should not exceed Rs 35 lakh
  • You should be a first time home buyer

Additionally, a new section 80EEA was introduced in the Union Budget 2019. It allows for additional deduction of interest on home loan up to Rs 1.5 lakh for affordable housing loans taken between 1 April 2019 and 31 March 2020. The 2021 Budget has further extended this date from 31 March 2021 to 31 March 2022.

If you avail a joint home loan, both the co-applicants are eligible to claim these deductions from their income individually. To meet the eligibility, you need to be a co-owner in the property, a co-borrower for the loan i.e. you should be an applicant as per the loan documents.

Interest repayment on loans from money lenders, friends or relatives is eligible for tax deduction under Section 24 if the purpose of the loan is purchase or construction of property.

Many borrowers are unaware that charges related to their loan are also eligible for tax deduction under Section 24. These charges are considered as interest, and hence qualify for tax deduction. They include service fee, pre-payment charges or other charges with respect to the loan amount.

You can enjoy various tax benefits with a home loan by reducing your taxable income. You can claim a total deduction of Rs 4 lakh from your total income on home loan repayment under various sections [24(b), 80C and 80EE] of the Income Tax Act, 1961. However, it is mandatory to fulfil the required conditions mentioned above to be eligible for home loan tax benefits. So, why wait? Apply now for a home loan with Kotak Mahindra Bank without any hassles.

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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.