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    Tax benefits on home loan: How to save tax using your home loan

    Synopsis

    Home Loan Tax Benefits: Home loan borrowers should note all income tax breaks offered on home loans because doing so can help you significantly lower your tax liabilities.

    hom-loanGetty Images
    To encourage citizens to invest in property, the government provides a range of home loan tax exemptions and deductions under the Income Tax Act of 1961. All home loan borrowers should be informed of all income tax refunds available on home loans, since doing so can drastically lower their tax payments.

    Every home loan borrower should be aware of the following income tax rebates on home loans.

    Cheapest home loan interest rates for amounts above Rs 75 lakh: PSU banks vs private banks

    Deduction on repayment of principal amount of home loan
    The EMI you pay is made up of two parts: principal repayment and interest paid. The major component of the EMI can be deducted under section 80C of the Income-tax Act of 1961 for self-occupied property. Section 80C deductions can also be claimed for stamp duty and registration fees paid when purchasing a home.
    Note that if you have a second home that is empty or if your parents live in it, that second home will likewise be considered self-occupied. If you have rented out your second home, it will be referred to as 'Let out property.'

    Also read: You will get a smaller home loan now as maximum loan eligibility drops by 20% in a year

    Deduction on interest paid on a housing loan
    A tax payer can deduct both the interest paid on a house loan as well as the principal amount that was repaid on the loan. In the case of self-occupied property, section 24 allows a deduction on the interest paid on a house loan up to a maximum of Rs 2 lakh in a given fiscal year. In the case of self-occupied property, interest payments above Rs 2 lakh would neither be carried forward nor offset against any other income head, such as capital gains, salary, etc.
    If you own two homes and one of them is vacant or occupied by your parents, section 24 also covers the interest on any home loans acquired for the other home. The total tax deduction for home loans for two homes cannot exceed Rs. 2 lakhs in a fiscal year.
    Additional deduction on buying an affordable house

    An additional deduction on the interest paid on a home loan used to buy the house is available if you purchased it under the affordable housing category. A maximum of Rs 1.5 lakh can be deducted under section 80EEA in a fiscal year. It is allowed for a maximum of Rs 2 lakh in addition to the deduction under section 24. A tax payer can thus claim a deduction of up to Rs 3.5 lakh in a fiscal year in the case that they purchase a reasonably priced home.

    Keep in mind that you cannot claim the same amount twice under two distinct sections. For instance, if you paid Rs. 1.4 lakh in interest on a home loan during the fiscal year, you can claim a deduction under Section 24 or Section 80EEA.

    Deduction under section 80EE
    For first-time homebuyers who took out mortgage loans, this deduction was reinstated in FY 2016–17. Taxpayers who took out a home loan in FY 2016–17 were eligible to claim an extra tax deduction under Section 80EE of up to Rs 50,000. Presently, under Section 24, a home loan borrower who pays interest on the loan may deduct that interest from his or her gross annual income up to a maximum of Rs 2 lakh. The deduction of Rs 50,000 introduced in Budget 2016 is in addition to the Rs 2 lakh limit.

    To be eligible for this deduction, you must fulfil the following requirements:
    a) Only residential house property will be eligible for the increased deduction for loan interest.
    It is solely available to first-time homebuyers.
    c) The annual maximum additional benefit is restricted to Rs. 50,000.
    d) The house's worth cannot exceed Rs. 50 lakh when a loan is applied for.
    e) The loan cannot be for more than Rs 35 lakh.
    f) The loan has to be sanctioned between April 1, 2016 and March 31, 2017.

    If you already taken out a home loan in FY 2016–17, however, you are still eligible to claim this deduction until the loan has been paid off in full. This tax benefit is not available for new home loans taken after April 1, 2017.

    If the required criteria are met, the total amount of house loan-related deductions—Rs 2 lakh under Section 24, Rs 1.5 lakh under Sections 80C and 80EEA—can enable you get a maximum deduction of Rs 5 lakh. If you are intending to acquire a new home, you can structure your transaction so that your loan enables you to receive the maximum deduction.

    How can I claim tax benefits under section 80EEA?
    To qualify for benefits under section 80EEA, an individual must meet a number of requirements. These requirements are as follows:
    a) The home loan must be obtained between April 1, 2019, and March 31, 2022;
    b) The stamp duty on the home property cannot exceed Rs. 45 lakh;
    c) The taxpayer cannot own any residential property as of the loan's sanction date; and d) The individual taxpayer may not be qualified for a deduction under the law's current Section 80EE.

    Is home loan interest part of section 80C of the Income-tax Act?
    No, section 80C of the Income-tax Act does not apply to interest paid on a mortgage. Principal repayments, however, are covered by section 80C. The principal amount of a home loan can be deducted up to Rs 1.5 lakh under section 80C.

    Are there any tax benefits on second home loan?

    Yes. It will be deemed self-occupied if the first residence is occupied and the second is unoccupied. In this situation, the interest paid on both homes may be written off as a tax deductible. But it can't be more than Rs 2 lakh. You are required to report the rental income from the second property if it is rented out while the first is inhabited by the owner. From there, you can deduct the paid municipal taxes, the interest on your house loan, and the standard deduction of 30%.

    If you own two houses and one of them is empty or inhabited by your parents, section 24 will pay the interest on any home loans obtained for the other property. The total tax deduction for house loans for two residences cannot exceed Rs. 2 lakhs per fiscal year.
    Additional deduction for purchasing an inexpensive dwelling.

    Latest home loan interest rates
    Upto 30 LakhAbove 30 Lakh & Upto 75 LakhAbove 75 Lakh
    PUBLIC SECTOR BANKS
    State Bank of India8.40-10.158.40-10.058.40-10.05
    Bank of Baroda8.40-10.658.40-10.658.40-10.90
    Union Bank of India8.35-10.758.35-10.908.35-10.90
    Punjab National Bank8.45-10.258.40-10.158.40-10.15
    Bank of India8.30-10.758.30-10.758.30-10.75
    Canara Bank8.50-11.258.45-11.258.40-11.15
    UCO Bank8.45-10.308.45-10.308.45-10.30
    Bank of Maharashtra8.35-11.158.35-11.158.35-11.15
    Punjab and Sind Bank8.50-10.008.50-10.008.50-10.00
    Indian Overseas Bank8.40 onwards8.40 onwards8.40 onwards
    Central Bank of India8.45-9.808.45-9.808.45-9.80
    PRIVATE SECTOR BANKS
    Kotak Mahindra Bank8.70 onwards8.70 onwards8.70 onwards
    ICICI Bank8.75 onwards8.75 onwards8.75 onwards
    Axis Bank8.70-13.308.70-13.308.70-9.10
    HSBC Bank8.45 onwards8.45 onwards8.45 onwards
    South Indian Bank9.84-11.249.84-11.049.84-11.69
    Karur Vysya Bank8.95-11.008.95-11.008.95-11.00
    Karnataka Bank8.60-10.608.60-10.608.60-10.60
    Federal Bank8.80 onwards8.80 onwards8.80 onwards
    Dhanlaxmi Bank9.35-10.509.35-10.509.35-10.50
    Tamilnad Mercantile Bank9.45-9.959.45-9.959.45-9.95
    Bandhan Bank9.16-15.009.16-13.339.16-13.33
    RBL Bank8.90 onwards8.90 onwards8.90 onwards
    CSB Bank10.69-12.5410.69-12.5410.69-12.54
    HDFC Bank Ltd.8.35 onwards8.35 onwards8.35 onwards
    City Union Bank12.35 - 14.1012.85 - 14.6013.35 - 14.85
    Source: PaisaBazaar as on February 6, 2024

    ( Originally published on Mar 22, 2023 )

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