How to Save Tax On Home Loan – 80EE Investment

Are you dreaming of buying your own house? Are you hesitant to spend your whole life saving on buying a house and paying extra taxes to the Government? The Indian Government is ready to fulfill your dream by helping you save tax on home loans under various Sections mentioned in the Income Tax Act, 1961.

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Let us understand how home loan tax benefits can be availed under various sections like 80C, 80EE, 80EEA, and Section 24(b) of the Income Tax Act, 1961.

What Is Home Loan?

A home loan is a finance source that conveniently helps you buy your dream home. The government grants you a loan as per your financial income, which must be repaid within a pre-defined period. At the time of repayment of the home loan, the government offers tax benefits under the Income Tax Act, which ultimately helps in reducing the financial burden of interest amount levied on the loan taken.

How Does Tax Saving On Home Loan Works?

A home loan can be taken for either of the two reasons:

  • Purchase of a new house

  • Construction of a new house (if taken, must be completed within 5 years of the financial year the loan was taken)

If the buyer is paying EMIs against the home loan, it can be either:

  • A principal repayment, or

  • Interest on the housing loan payment

One can save tax on home loans under various Sections in the Income Tax Act, 1961, provided by the Government of India.

The following table shows the income tax benefit on home loans under different sections.

Sections Nature of home loan deduction Deduction amount
Section 80C Principal Repayment Deduction Rs. 1,50,000
Section 24(b) Interest paid on Deduction Rs. 2,00,000
Section 80EE Additional interest tax benefit for first-time homebuyers Rs. 50,000
Section 80EEA Additional tax benefit offered under the "Housing for All by 2022" program for a limited period. Rs. 1,50,000 over and above the Rs. 2,00,000 deduction amount under Section 24(b)
  1. Section 80C

    Section 80C of the Income Tax Act, 1961, offers the buyer principal amount deductions as follows:

    • Rs. 1,50,000 can be claimed for all the properties (either let out or personally occupied) every year under the principal repayment deduction from taxable income.

    • The stamp duty exemption amount is included in Section 80C. However, it can be claimed just once.

    • Section 80C can be claimed only on completed properties that are not under construction.

    • If the house is sold before 5 years of possession, then the claimed deductions will be revoked.

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  2. Section 24(b)

    Under Section 24(b), one can claim the following house loan tax exemptions:

    • Deductions up to Rs. 2,00,000 can be claimed on the amount payable as interest.

    • Only completed properties within a period of 5 years can claim deductions.

    • If the construction is not completed within 5 years, then only Rs. 30,000 can be claimed.

  3. Section 80EE

    Section 80EE of the Income Tax Act, 1961, offers the following income tax benefits on home loans:

    • The tax benefit is available on the interest paid for the home loan.

    • A maximum of Rs. 1,50,000 can be claimed under this Section.

    • It is important to note that Section 80EE is applied over and above exemption under Section 24(b) of Rs. 2,00,000.

    • To claim a tax rebate on a home loan under Section 80EE, the valuation of the property must be less than Rs. 45 lakhs at the time of purchase.

  4. Section 80EEA

    Prime Minister Narendra Modi, in the year 2014, launched a flagship named the “Housing for All by 2022” program. Section 80EEA of the Income Tax Act allows additional deductions up to Rs. 50,000 for home buyers on the interest paid.

    It is important to know that this Section was valid till 31st March, 2022, and new home buyers after the Financial Year 2023 will not be able to benefit from this section.

How to Claim Tax Benefits On Home Loans?

Having knowledge about the Sections under the Income Tax Act and home loan tax benefits is not enough. Apart from knowing, it is also necessary how to put it to use.

Here are the following steps through which you can claim tax benefits on home loans:

  1. It is the most important thing to calculate the taxpayer's total tax deductions to claim. 

  2. Tax benefits on home the loan can be availed only if the house is in your name or you are the co-owner of the house.

  3. A home loan tax certificate needs to be submitted to your employer so that tax deducted can be adjusted at the source.

  4. In case you are not willing to submit the certificate to the employer, or you are not working under any, then the tax return needs to be filed yourself or by your CA (Chartered Accountant), if any.

How to Calculate Tax Benefits?

To calculate tax benefits on home loans, one can use the online tax benefit calculator. Enter the following details, and the tax will be computed instantly:

  • Tenure of home loan

  • Loan amount

  • Starting date of home loan

  • The interest rate applicable

  • The annual income of the buyer

  • Deductions applicable

To End!

There are many provision made by the Government of India that helps you save your hard-earned money. One needs to be very careful and well-read while filing the income tax return for their own benefit.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
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