The Government of India has aimed to boost the real estate sector in the country by implementing different policies like –

  • PMAY – Pradhan Mantri Awas Yojana, launched in 2015 this scheme aims to provide affordable housing to Indians.
  • RERA Act, 2016 – Real Estate Regulatory Authority was formed, and the Real Estate (Regulation and Development) Act was implemented to bring transparency in this sector.

Additionally, when the RBI cut down the repo rate from 5.75% to 5.15%, it allowed aspiring home buyers to avail housing loans at more accessible terms.

However, before applying for such credits, borrowers should know about home loan tax benefits they can enjoy on their income tax. According to the Income Tax Act, 1961, borrowers can enjoy tax benefits under three Sections – 80C, 24(b) and 80EE.

Section 80C

Under this Section, individuals can claim tax benefits of up to Rs.1.5 lakh on the principal amount of their home loans availed for either purchase or construction of a residential property. 

However, to claim these benefits, borrowers have to follow some measures, these are –

  • The construction/purchase of the property must be completed within 5 years of availing the home loan.
  • Borrowers cannot sell their property for which they have availed this home loan within five years.
  • In case they sell this property, the tax exemption will be reversed and added to their income tax payment of that year.

Under this Section, borrowers can also claim for the stamp duty and registration fees they have paid for their property.

Section 24(b)

Under this section, borrowers can claim up to Rs.2 lakh as home loan tax exemption on the interest paid. Here, this tax exemption is divided into two categories – pre-construction period and post-construction period. 

Pre-construction period: Borrowers can relish tax exemption on the interest paid on their home loans for under-construction property. However, this period cannot be more than 5 years. Individuals can claim this exemption in five equal installments.

Post-construction period: Here, individuals can enjoy a home loan tax benefit of up to Rs.2 lakh after the construction of the property is completed. However, in the case of a let-out property, there is no upper limit to this exemption.

Section 80EEA

Section 80EEA, which replaces the previous Section 80EE, allows borrowers to benefit from an exemption of up to Rs.1.5 lakh on interest paid on home loans under affordable housing schemes. This benefit is primarily for first-time homeowners.

This section requires beneficiaries to meet the following conditions –

  • The property value must be under Rs.45 lakh and the loan amount must be under Rs.35 lakh.
  • The carpet area of the house is restricted to 60 sq. m in Delhi, Mumbai, Kolkata, Hyderabad, Faridabad, Gurgaon, Ghaziabad, Noida, and Greater Noida and 90 sq. m in other cities. 

To avail of these home loan tax benefits, the credit should be sanctioned between 1st April 2019 and 31st March 2021.

Tax benefit on joint-loan

Each co-owner or co-borrower can claim tax exemption of Rs.2 lakh on interest paid and Rs.1.5 lakh on the principal amount of a loan.

Home loans incur a considerable debt on the borrowers until it is repaid. Thus, any home loan benefit that one can avail is a bonus for that individual. Hence, borrowers should consult their lenders, read all the documents related to the credit and do their research to have all the home loan tax exemptions and benefits on their fingerprint before applying.

Additional Read: Understand How Your Home Loan Can Offer You Tax Benefits