Home loans make purchasing your dream home more accessible by allowing you to maintain liquidity while paying through affordable EMIs. Additionally, they offer tax benefits under the Income Tax Act of 1961, allowing borrowers to claim exemptions on both the interest and principal components of the loan. This not only helps reduce the financial burden but also makes homeownership more financially viable. This article discusses how to maximize home loan interest deduction as well as the interest deduction on the principal component of the loan. If you are a home loan borrower, here are a few simple ways to maximize housing loan tax benefits.
Maximizing Home Loan Benefits: A Few Simple Tricks and Tips that Will Help
1. Section 80C of the Income Tax Act of 1961 deals with home loan tax exemptions on the principal component of one’s housing loan. Joint home loan borrowers can maximize housing loan tax benefit by claiming tax benefits separately under Section 80C of the Income Tax Act. For instance, if a father and son or a husband and wife have opted for a joint home loan, they can claim housing loan tax benefits separately under Section 80C of the Income Tax Act, thereby maximizing their home loan tax benefit up to a maximum of Rs.3 Lakh under this section. Home loan borrowers must also know that if one has more than a single home loan, they can claim home loan tax benefits on all the loans. However, in this case, the maximum housing loan tax exemption that one can claim under Section 80C is Rs.1.5 Lakh, even if the loan borrower has more than two home loans.
2. Section 24b of the Income Tax Act talks about home loan tax benefits available to home loan borrowers on payments made towards the repayment of the interest component of their home loan. The maximum limit defined under this Section is Rs. 2 Lakh. Joint home loan borrowers can maximize tax benefits by claiming them separately under Section 24b. Further, the maximum limit applies only to self-occupied properties. For properties rented out, there is no upper limit on how much one can claim as a housing loan tax benefit. For rented-out properties, the entire amount paid towards home loan interest repayment can be claimed as tax benefits under Section 24b.
3. First-time homebuyers can claim additional home loan tax benefits under Section 80EE and Section 80EEA. The maximum limit permissible under Section 80EE is Rs.50,000 and that under Section 80EEA is Rs.1.5 Lakh. However, both these sections have very specific eligibility requirements that one must meet to be considered eligible for claiming housing loan tax benefits under these sections. Further, homebuyers cannot claim home loan tax benefits under both Section 80EE and Section 80EEA.
4. If you have invested in an under-construction property, you can claim a home loan interest deduction on payments made towards the repayment of the interest component of the loan while the home was still under construction after the construction is complete, in five equal instalments spread over 5 years. However, the pre-construction and post-construction interest cannot exceed Rs.2 Lakh. Further, if the construction is not complete in five years, the maximum home loan interest deduction you can claim will automatically come down to Rs.30,000.
If you want to maximize housing loan tax benefits, here are a few things that you must do.
1. Make sure the home is registered under your name. Borrowers who have availed of a joint home loan and want to claim home loan tax benefits separately can do so only when the borrower is a co-owner of the property and has their name on the registration papers. Co-borrowers who are not co-owners can not claim home loan benefits.
2. Talk to a home loan expert. Calculating home loan tax benefits is tricky. There are many different sections and each has different qualifying criteria. So, remembering everything is not always easy. So, consider hiring the services of a housing loan tax expert to help you maximize your home loan tax benefits.
3. Lastly, make it a point to provide the HR department of your company, i.e. if you are salaried, with an interest certificate for TDS adjustment.
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