Your guide to understanding income tax benefit on home loan

Just like property in India is a good investment, home loan India too are a great investment. With property rates soaring, it’s not really possible for the common man to purchase a property of his own without opting for home finance. But with so many taxes that already get deducted from your income can you really afford to pay your monthly EMIs?

Well, the Income Tax Act has made provisions for home loan borrowers, so that they can finally fulfill their dream of having a home of their own. There are three sections in the Act that give you tax benefits on home loan. You should know these because they are handy tax saving calculators. Here’s what they are.

1.  Section 80C: This section states that you can claim tax benefits of up to Rs 1.5 lakhs on repayment of the principal amount of your loan.

2.  Section 24: This section states that you can claim tax benefits of up to Rs 2 lakhs on repayment of interest on housing loan but this is only applicable for a self-occupied property. If you are renting out your property then there is no maximum limit on the tax benefit amount. So, you can claim the entire interest amount as a tax benefit. You can do this even if the amount exceeds Rs 2 lakhs.

3.  Section 80EE: This section states that if you are a first-time buyer then you can claim an extra Rs 50,000 as tax benefits on the interest repayment.

There are many tax benefits on home loan but, there are certain conditions that you need to fulfill to be able to claim them. The first and foremost condition is that you can only start claiming income tax benefit on home, once the construction of your new property is complete. These tax benefits do not apply to under construction properties, even if the borrower has already started paying EMIs. But there is an exception to this rule. You can get a benefit if the construction ends within five years of you taking the loan. Earlier this was only three years. This period has been revised because of the rising number of stalled constructions in recent times.

If you opt for a joint loan, to enjoy income tax benefit on home loan, the second party has to be a co-owner as well as a co-borrower. They can then claim tax benefits on their home loan interest rate separately. They can only do this when their individual share of the property is clearly defined. The ratio of tax benefit is the same as the ratio of the property share.