Home Loan Exemptions : Tax Rebates, High Savings

A home loan can not only get you your dream home —it can also help you save on taxes! Home loan exemptions offered by the Income Tax Act (1961) allow borrowers to claim rebates that lower their taxable income. These exemptions range from Rs. 50,000 to Rs. 2 lakh, ensuring ease of investment for home loan customers. Whether you’re seeking a house loan for tax exemption or wondering how the home loan exemption in the new tax regime works, this blog will be your trusted guide. Read on to learn about the laws, the application process for housing loan exemptions and more.

Laws Governing Home Loan Exemptions

The Income Tax Act (1961) offers home loan exemptions on principal repayments and interest payments. These provisions are covered under Sections 24(b), 80C, 80EE, and 80EEA of the Act. Take a detailed look at each section below:

Section 24(b): Interest Payment Exemptions

Section 24(b) allows exemptions on housing loan interest payments. The section enables self-occupied properties to deduct a maximum of Rs. 2 lakhs annually. Interest payments can be claimed without any upper limit if the property is rented out. However, the total loss from the property that can be adjusted against other income in a year is capped at Rs. 2 lakhs.

Interest payment deductions are available only for purchase, construction, repair, renewal, or reconstruction loans. The property must be completed within five years of taking the loan. Exceeding the allowed time would curtail the deduction up to Rs. 30,000 annually.

Section 80C: Principal Repayment Exemptions

Section 80C offers home loan exemptions of up to Rs. 1.5 lakhs per annum on the principal component of the loan. This section also covers stamp duty and registration payments. However, the deduction can be claimed only if the property is not sold within five years of possession to be eligible for it. If this fails, the deductions will be re-added to the gross income in the year of sale.

Section 80EE: Additional Exemption for First-Time Homebuyers

First-time homebuyers can claim an additional tax deduction of up to Rs. 50,000 on the interest component of the loan. To qualify, the loan amount should not exceed ₹35 lakh, and the property’s value should not be more than ₹50 lakh. Additionally, the loan must have been sanctioned between April 1, 2016, and March 31, 2017.

Section 80EEA: Exemptions for Affordable Housing

This section offers home loan exemptions up to Rs. 1.5 lakhs per annum on interest payments of properties with stamp duty less than Rs. 45 lakhs. The section applies to home loans sanctioned between April 1, 2019, and March 31, 2022. Further, the taxpayer should not own any other residential property at the time of the loan’s sanction.

Section 26 to be Read With Section 24: Exemptions for Joint-Owners

When a property is jointly owned, Section 26, read with Section 24, allows each co-owner and co-borrower to claim separate tax deductions. Both co-owners can individually claim the ₹2 lakh interest deduction under Section 24(b) and the ₹1.5 lakh principal deduction under Section 80C. However, deductions are subject to the share of ownership of the property.

Home Loan Exemptions in the New Tax Regime

While the new tax regime introduced lower rates for home loans, it also curtailed available exemptions. Taxpayers lose out on deductions available on interest payments [Section 24 (b)], principal repayments [Section 80C], and even additional deductions [Section 80EE and Section 80EEA]. These exemptions apply to self-occupied properties. On the other hand, let-out properties are still eligible for interest exemptions based on the taxable rental income earned. However, no set-off of losses is permitted.

While home loan exemptions in the new tax regime are limited, borrowers enjoy lower rates instead. Taxpayers, therefore, must carefully compare both regimes before filing their returns.

Documents Required for Claiming Home Loan Exemptions

Home loan borrowers must produce the necessary documents to claim exemption on housing loans. Some essential documents are listed below:

• Ownership Documents: Proof of property ownership, such as the sale deed or property registration document.
• Loan Details: Documents detailing the loan account number, sanctioned amount, and disbursement details.
• Interest Certificate: A certificate from the lender specifying the interest and principal amounts paid during the financial year.
• Other Documents: Consult your financial advisor for other necessary document submissions while filing tax returns.

Salaried individuals must submit these documents to their employers for accurate TDS adjustments, while self-employed individuals should retain them for reference while filing IT returns.

Benefits of Home Loan Rebate

Housing loan exemptions offer benefits from added savings to easy home financing. Take a look at some prominent advantages below:

• More Savings: Claiming home loan tax deductions reduces taxable income and results in direct tax savings. These can be reinvested in home improvements, loan prepayments, or other financial goals. Further, the deductions can be claimed yearly until the loan’s completion.
• Enhanced Loan Affordability: Tax exemptions reduce the overall cost of home loans, allowing more people to apply for loans and simultaneously have more funds.
• Encouragement for Home Ownership: Home loan rebates encourage individuals to invest in property rather than continue renting. Besides contributing to individual asset building, they also boost the real estate market.
• Wide Eligibility: Single owners, joint owners, and first-time home buyers can all seek home loans for tax exemptions. Further, these deductions are available on self-occupied and rented-out properties, ensuring broader applicability.
• Better Financial Planning: Tax exemptions on home loans are a great way to promote long-term financial thinking. The availability of rebates pushes investors to invest more actively in assets like real estate.

Common Mistakes to Avoid

While applying for housing loan exemptions, taxpayers must avoid making the following mistakes:

• Not Choosing the Right Tax Regime: Home loan exemptions are only available under the old tax regime. Opting for the new regime without evaluating tax benefits can lead to missed deductions.
• Incorrect or Incomplete Documentation: Document inconsistencies can slow down the claim process, while failure to submit the right documentation might lead to outright rejection.
• Missing Out on Joint Loan Benefits: Joint home loan borrowers often miss tax deductions due to a lack of awareness. They must seek reliable financial guidance to claim available benefits while filing taxes.
• Ignoring Property Ownership Conditions: Tax deductions are available only if the loan borrower is also the property owner/ co-owner. Claiming housing loan exemptions without ownership documents can lead to compliance issues.
• Not Tracking Construction Completion Timelines: Interest deductions, for instance, are applicable only if the property is constructed within five years. Any delay in completion can significantly reduce the deductible amount.

Home Loan Exemption: Old Tax Regime vs New Tax Regime

Compare the home loan exemptions in the new tax regime versus those in the old tax regime in the table below:

Summing Up

Home loan exemptions are tools for savings. They make home loans more affordable while providing more disposable income through tax deductions. Exemptions on housing loans cover both principal and interest payments. While the old tax regime provides multiple deductions under Sections 24(b), 80C, 80EE, and 80EEA, home loan exemptions in the new tax regime remain largely absent. Whether you’re looking for a house loan for tax exemption or exploring ways to maximise savings, understanding these provisions can ensure smarter financial planning and long-term wealth creation.

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