The Ultimate Guide to Home Loan Interest Deduction

Home loans involve a sizeable sanction. With real estate prices going higher and higher with each passing day, home loans often run into lakhs, sometimes even crores. When the loan amount is so high, the home loan interest rate offered becomes even more crucial. 

Home loan borrowers are advised to negotiate with their lender for a low interest rate as home loan interest rates have a direct impact on the cost of borrowing the loan and a borrower’s EMIs. Since there is a direct co-relation between loan EMIs, interest outgo and the home loan interest rate, low interest rates translate into low and affordable EMIs and low total interest outgo. High interest rates, on the other hand, make home loans expensive and difficult to repay. 

Further, the Government of India offers home loan tax benefits on both the interest as well as the principal component of a home loan, which further reduces the cost of borrowing the loan. In this article, we discuss how to claim deductions on the interest component of a home loan. However, before we go into the details of that, let us understand the various sections of the Income Tax Act and what they say about home loan tax deductions available on the interest component of a home loan. 

Home Loan Tax Deductions Under Section 24b of the Income Tax Act 

Under Section 24b of the Income Tax Act, borrowers can claim tax deductions up to a maximum of Rs.2 Lakh on the interest component of the home loan. Unlike Section 80C of the same act which deals with several different tax-saving instruments, Section 24b deals primarily with the home loan tax benefits on the interest component of the home loan. However, borrowers must know that they can claim this deduction only after the construction of the home has been completed. Further, if a homeowner sells a home within five years of buying it, the deductions get reversed. One can also claim tax deduction on pre-construction interest payments but up to a maximum of Rs.30,000 and spread across five equal instalments after the construction on the property gets complete.

Home Loan Tax Deductions Under Section 80EE and Section 80EEA of the Income Tax Act 

Over and above the income tax deductions mentioned under Section 24b of the Income Tax Act, one can also claim additional tax deductions on home loan interest payments under Section 80EE and Section 80EEA of the Income Tax Act. Under Section 80EE of the Income Tax Act, one can claim an additional tax benefit of Rs.50,000. However, this additional tax deduction is available only to first-time homebuyers who had availed of a loan between April 1, 2016 and March 31, 2017. Further, the value of the home purchased with the home loan amount should not have been higher than Rs.50 Lakh at the time of availing of the loan. 

Under Section 80EEA, borrowers can claim an additional home loan tax benefit up to a maximum of Rs.1.5 Lakh provided they meet certain conditions. These deductions are available only to first-time home buyers who had availed of a loan between April 1, 2019 and March 31, 2022. Further, the value of the home purchased with the help of the loan must not have been higher than Rs.45 Lakh at the time of sanctioning of the loan.

How to Claim these Home Loan Interest Deductions 

If you want to claim these home loan interest deductions, there are two ways to go about it. If you are salaried, you can either claim these deductions at the end of the year by filling out the Income tax form and disclosing the relevant details or you can approach your employer and have them deduct tax through your salary through the year and have the home loan tax deductions adjusted at source. Please note that to be able to claim these tax deductions, you will have to submit certain documents, such as loan agreement and interest certificate. So, please keep all the required documents ready with you.

Final Words 

Home loans are an excellent and efficient way to build assets. However, one must avail of these loans after careful planning. Further, everyone must necessarily avail of the home loan tax benefits that housing loans bring with themselves as these tax benefits help borrowers save a lot of money each year in taxes.