Housing Loan Interest

Maximizing Tax Benefits on Housing Loan Interest under Section 24

sPurchasing a home is a long-term investment for most individuals, and a lump sum of their disposable income goes towards the home loan EMI repayments. To extend convenience and help borrowers save a significant amount of money, the Government of India offers tax benefits on home loan interest. 

Several sections of the Income Tax Act allow individuals to claim tax exemptions. Among those, Section 24 of ITA circles around the interest rate on housing loans. The sections below highlight the particularities of Section 24 of ITA.

Deduction under Section 24 of the Income Tax Act

Under Section 24 of the Income Tax Act, individuals can claim two types of tax deductions.

  • Interest on home loan

Under Section 24 of the Income Tax Act, individuals who have opted for a home loan to construct, purchase or renovate their home can enjoy a tax exemption up to Rs.2 lakhs on the housing loan interest they are charged on the sanctioned loan amount. However, the exemption limit can reduce to only Rs.30000 if the borrowers do not adhere to the conditions mentioned below:

  • The loan amount must be utilis only for purchasing or constructing a new house.
  • Borrowers can seek deduction only if the purchase or construction of house is complete in five years, counted from the year when the loan was opt for. 
  • In case one has to opt for a new loan amount to repay any earlier loan, which was avail of for constructing or purchasing a house, individuals can claim a tax deduction on interest component of the new loan. 
  • This deduction is applicable for self-occupied properties.

Besides reducing tax outgo under Section 24, borrowers can also claim an exemption of up to Rs.1.5 lakhs on principal repayment. This deduction is applicable under Section 80C of the ITA. 

  • Standard deduction

A homeowner can claim a deduction of 30% of the property’s net annual value according to Section 24 of the ITA. Taxpayers can get 30% deduction even if property’s net value is above or lower than this, suggesting that the deduction is applicable irrespective of total expenses incurr on repairs, electricity, insurance etc. 

However, standard deduction is not applicable for a self-occupied house as income from such property is zero. 

Furthermore, purchasing a home under co-ownership will help borrowers reap the advantages of higher tax benefits, leading to more savings. In this regard, borrowers must also know tax benefits on joint home loan. 

There are pointers that borrowers must know to reap the maximum of home loan tax benefits.

  • Individuals can enjoy tax benefits every year.
  • The claim tax benefits will be reversed in case borrowers sell the property after five years of residing there.
  • In case individuals let property out for rent after purchasing it, no interest deduction will be applicable. 
  • If borrowers have to bear rent for the house where they are currently staying while opting for home loan, they can enjoy tax benefits against House Rent Allowance (HRA). 

Tax benefits help borrowers reduce overall loan expenditure. However, borrowers must also strive to opt for a lender offering the lowest housing loan interest rate.

In this context, borrowers must also know the factors that impact home loan interest rates. 

Besides reaping tax benefits, borrowers can also make the most of the pre-approved offers extended by reputed financial institutions on financial products like home loans, loans against property etc. These offers expedite the loan application process. Individuals must submit their names and contact details to check their pre-approved offers. 

Tax deductions are eligible expenses as per the Income Tax Act, allowing individuals to claim against their disposable earnings. It helps them save significantly on taxes. Moreover, these tax benefits encourage individuals to invest in property and allow them to claim deductions against the principal amount and interest rate on housing loans. 




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