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Tax Benefits on Housing Loan

Mr. C.S. Sudheer | Posted On Monday, June 23,2008, 02:30 PM

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Tax Benefits on Housing Loan



Buying a home is one of our most important goals. The government has also encouraged individuals to invest in a house. To motivate citizens, the government has introduced tax benefits on home loans. A home loan not only allows you to fulfil your goal of purchasing a dream home but it also comes with a variety of tax benefits that significantly reduce your tax outgo. Many home buyers are not aware of the tax benefits provided by home loans and so being aware of these tax exemptions are important. The guide below helps you identify the tax benefits you can claim on housing loans:

Benefit on Home Loan Principal Repayment

An individual who has availed a home loan for the purchase or construction of a house is liable to repay the loan in EMIs. Paying the loan has two components namely, interest payment and principal amount repayment. While repaying the principal amount of the home loan the individual can benefit from a tax deduction of up to Rs. 1.5 lakh as per section 80C of the Income Tax Act. The individual can get this benefit only if the construction of the house is complete. The benefit is not applicable if the property is sold within five years of possession. This section also allows the individual to claim a deduction for the amount paid towards stamp duty and registration charges.

Deduction on Joint Home Loan

If the home loan is availed in a joint name then each of the loan holders can claim a deduction for home loan interest up to Rs. 2 lakh each along with principal repayment under section 80C of up to Rs. 1.5 lakh each in their individual tax returns. This deduction can only be availed by joint borrowers who are also co-owners of the property on which loan is taken. 

Section 24:Benefit on Home Loan Interest Payment

An individual can claim tax deduction with respect to the interest paid on home loan under section 24 of the Income Tax Act. You can claim deductions with regard to the interest that you pay on your home loan under Section 24 of the Income Tax Act. If your property is self-occupied, you can claim an exemption of up to Rs.2 lakh as long as the property is completed in 5 years. If its completion exceeds this time frame, the limit drops and you can claim up to Rs.30,000. On the other hand, if you aren’t occupying the property yourself, there is no limit on how much you can claim as an exemption, regardless of the status of completion.

Section 80EE

An individual can avail additional deduction under Section 80EE. This benefit can be availed by first time home buyers. To claim this deduction, the amount of loan availed should be Rs. 35 lakhs or less and the total value of the property should not exceed Rs. 50 lakh.

SEE ALSO:Tips For Home Loan EMI Repayment

Below are Some of the Criteria to be Followed Before Availing Benefit Under Section 80EE

Only individual taxpayers can claim tax exemption under section 80EE on the properties purchased either singly or jointly. The tax benefits are not applicable for HUF (Hindu Undivided Families), the association of persons, companies or trusts. The conditions associated with claiming tax exemption under section 80EE is as follows:

  • The individual can claim tax exemption only if this is the first time he has purchased a house.
  • The value of the house should be less than Rs. 50 lakhs.
  • Also, the home loan availed should be below or equal to Rs. 30 lakhs.
  • According to section 80EE, an individual can claim deduction only for the interest paid towards the home loan.
  • The home loan must be sanctioned by a housing finance company or a reputed financial institution for availing tax exemptions under section 80EE.
  • On the sanction date of the home loan, the individual must not have any home registered in his name.
  • The loan must not be availed for purchasing commercial property.
  • For claiming deductions under this section, the loan must be sanctioned in between the dates April 1st 2016 to March 31st 2017.

The balance amount of up to Rs. 50,000 can be claimed under section 80EE of the Income Tax Act, 1961.

Loans are very important for all of us to realize some of our major dreams in time. We all look forward different kinds of benefits from loans we take. Of course it may be less interest rate, low processing fee, easy documentation, time taken to release the loan and finally, the very important thing we expect from a loan is Tax Benefit.

Tax benefits from loans are in different types and even it depends on the nature of loan taken. We take loan for personal use or to fund for our children’s education or construction of our house. We don’t get any tax benefit from the loan taken for our personal use. But of course we can claim tax exemption on the loan taken for education and house construction. As I have posted an article on Tax Benefits on Educational Loan, now I am giving you the complete details of tax benefits which can be availed on Home loan or the loan taken to construct a house.

Nowadays, it is very difficult to fund the entire amount for your house construction, because of skyrocketing real estate prices and construction costs. Therefore, we all take home loans from different banks at different rate of interest. It is again very difficult to repay the loan, but if you do your financial planning and tax planning properly, you can save a huge amount legally by considering the prevailing tax laws.

According to the income tax laws applicable, the interest paid on the capital borrowed for the acquisition or construction of house property is eligible for deduction up to the maximum limit of Rs 150000 per annum. You also get a 20% rebate on repayment of principal of the housing loan per annum. While this was earlier subject to a maximum of Rs 10,000, it is now Rs 1,00,000 and people can avail this benefit under section 80c of the income tax Act.

SEE ALSO: What Is My Home Loan Eligibility?

Points to be Considered:

You should be residing in the home for which the loan is taken. If you are residing in a city but buying property in your home town to prepare for retirement, this will not be applicable. The property has to be acquired or constructed before April 1, 2003. The money should have been borrowed to construct or acquire property on or after April 1, 1999. If it was prior to this date, the deduction is only valid up to Rs 30,000.

Know about Tax Planning in India

You may find it more convenient and cheaper to finance the property out of your own resources. But do remember, you would be losing the tax shelter on account of the deduction available as well as the tax rebate. You can claim a rebate for housing loan only on producing the interest certificate from the lending institution. Taking a loan from a family member or a friend, who may get you a loan at cheaper rate of interest, or no interest at all, but will not qualify for such deductions. Only loans taken and interest paid thereon, to specified financial institutions which offer housing loans, qualify for deduction under the Income Tax Act, 1961.

If the loan is jointly taken by you and your spouse, you both are entitled to tax benefits. Since both will be claiming the deductions and rebate, you will have to approach the financial institution and ask for a certificate. This certificate will state how much of the loan is your responsibility and how much you are contributing towards the repayment. Your tax deduction and rebate can be calculated based on this amount.

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