Borrowing through a home loan is one of the biggest financial responsibilities for any individual. Not only does it help you fulfil the much-awaited dream of owning a home, but it also makes you eligible for tax benefits. The government of India provides various tax benefits to borrowers seeking a home loan.
If you have purchased a house after taking home loan or you are planning to buy one, then tax exemption on both principal and interest components under different sections of the Income Tax Act, 1961 will help accumulate savings in a year. In this article, let’s get to know the exemption limit for housing loan principal.
Section 80C of the Income Tax Act:
A home loan allows for the following tax benefits:
Under Section 80C, you are eligible for a tax deduction of up to Rs. 1.5 lakh in a financial year. You can claim the tax exemption every year until you have repaid the complete loan amount.
To claim the tax benefit, below are conditions that you should meet for Home Loan Principal deduction:
- The tax benefit on the home loan principal is applicable only if you have not sold the property within 5 years of purchase. In case you sell the property within the period of 5 years, all the tax deductions for which you applied will be nullified.
- Such tax exemption is allowed only once the residential construction is complete. To avail such a deduction, it is necessary to produce the project completion certificate.
- For under construction property, home loan borrowers can claim a tax deduction of up to Rs. 1.5 lakhs on the principal paid under Section 80C of the IT Act.
| Particulars | Section 80C of the IT Act |
| Tax Deduction allowed for | Principal |
| Type of Property | Only Residential |
| Quantum of Tax Deduction | Rs.1,50,000 |
| Purpose of the Loan | Purchase or Construction of New Property |
Interest Deduction on home loan:
Section 24 of the Income Tax Act allows homeowners to claim a deduction of up to Rs. 2 lakhs (Rs. 1,50,000 if you are filing returns for last financial year) on their home loan interest if the owner or his family reside in the house property.
Other conditions if you are looking to claim tax benefits:
- The loan must be taken from a bank or National Housing Bank, co-operative bank, financial institutions under 80C(2)(xviii)(c).
- A home loan taken from friends or relatives or an un-notified lender shall not be eligible for a tax deduction. Additionally, if there is a legal written agreement for buying a loan from friends or family, then a tax deduction would not be applicable.
- A tax break will not be applicable if you are a co-borrower for home loan. One needs to be a co-owner. For instance, if your parents own a house property for which you are paying the home loan EMIs, then, too, you can’t claim tax breaks until you co-own the property. Both parties need to be owners and borrowers to claim tax benefits.
- Similarly, if you have purchased the property with your spouse but you are not a co-borrower, then you won’t be eligible for the home loan tax deduction.
Now that you know what the maximum tax deduction on the home loan principal component is, let’s get to know how you can calculate the tax benefits using the Home Loan Tax Benefit Calculator:
A home loan tax benefit calculator provides easy and accurate estimations for tax benefits that you can claim on your home loan repayments. It helps you know the exact deductible amount applicable on your principal and interest components of a home loan.
To use the tool, you just need to enter a few details like your income, annual salary, interest earned. Note that you are entering accurate information to get accurate results. The online tool then provides a correct figure for home loan deductions.
