Buying and investing in your own home is a dream come true for anyone. The Indian government has always shown great sympathy and encouragement to encourage people to invest in their own homes. This is the main reason why a home loan is eligible for tax deduction under Section 80C as per the provisions of the Income Tax Act, of 1961.
When you buy a home by taking a home loan through banks, it comes with multiple tax benefits that significantly reduce your tax outgo. Every time one repays a loan through EMIs, you are entitled to tax deduction benefits that will give you some relief. Your home loan equated monthly installments consist of mainly two components, the principal amount and the interest on the principal. The principal of your EMI qualifies for deduction under section 80C of the Income Tax Act, 1961, while the interest portion of your EMI (in respect of a self-occupied property) gets you a further tax deduction of Rs 2 lakh, under Section 24b of the Income Tax Act, 1961.
And if you’re thinking this is it then you’re wrong! There’s more to it. You can claim additional tax deductions for interest payments on the existing home loan you took from the bank. You can claim an additional deduction of up to Rs 50,000 per year against interest paid on a home loan, under Section 80EE, which was introduced in the Finance Act, 2016. But it’s only possible if the property you purchased is your first and you have taken a home loan to buy it.
Moreover, many government schemes like Pradhan Mantri Jan Dhan Yojana are flashing the green light on the Indian housing sector by striving to bring down the issues of affordability and accessibility.
Besides claiming the tax deduction for the principal component of your EMI, a deduction for registration charges and stamp duty can also be claimed under Section 80C but within the overall limit of Rs 1.5 lakh. However, it can be only claimed in the year these expenses are done.
Additional deduction under Section 80EE
The additional deduction is allowed to the home buyers under Section 80EE for a maximum of up to Rs 50,000. An individual can claim the deduction if the loan has been sanctioned between 1st April 2016 to 31st March 2017 and the amount of loan taken is Rs 35 lakh or less. And the value of the property does not exceed Rs 50 lakh. Section 80EE was reintroduced but is valid for loans sanctioned till 31st March 2017 only. And on the date of loan sanction, the individual does not own any other house, i.e. first-time house owner.
Additional deduction under Section 80EEA
Budget 2019 has introduced an additional deduction under Section 80EEA for homebuyers to promote the housing sector, for a maximum of up to Rs 1,50,000 lakhs. But there are certain conditions that should be met before claiming the deduction. The stamp value of the property does not exceed more than Rs 45 lakh. On the date of home loan sanction, the one getting the loan does not own any other house, i.e. he/she should be a first-time home buyer. The loan must have been sanctioned between 1 April 2019 to 31 March 2022 (extended from 31 March 2021). The individual should not be eligible to claim deduction under Section 80EE if claiming deduction under this section.