Tax Benefits on Home Loans

The tax structure underwent a major change in 2020. A new tax system was implemented by the government during the Union Budget, resulting in a significant change in individual taxation. The new tax system introduced lower rates for different income brackets but removed many of the previously available deductions and exemptions. Taxpayers now face the decision to either keep the old tax system or switch to the new one. This decision is critical as it directly affects the tax benefits you can receive, especially for home loans. The deductions available for principal and interest paid on home loans could differ based on the tax regime you decide on.

Tax Benefit on Principal Amount of Home Loan

If you’re still using the old tax system, section 80C of the Income Tax Act allows you to deduct the principal component of your Home Loan’s EMI. The deduction mentioned is only for self-occupied properties with a maximum limit of INR 1.5 lakhs. 

If you have another property, whether it’s empty or occupied by family members like your parents, it is still classified as a self-occupied property. When you have multiple properties and are repaying home loans, you can claim an exemption on the principal amount for all the loans while filing your income tax return. Despite this, the maximum limit for exemption during Income Tax Return (ITR) filings continues to be INR 1.5 lakhs.

Furthermore, under section 80C of the Income Tax Act, you have the opportunity to claim deductions for expenses such as stamp duty and registration charges. The maximum deduction allowed under Section 80C is Rs 1.5 lakh.

Tax Benefit on Home Loan Interest Rate

You can also benefit from tax deductions on the interest you pay for your house loan. Section 24 of the Income Tax Act permits a maximum deduction of INR 2 lakhs per financial year for self-occupied properties. Likewise, if you have a second home that is either vacant or occupied by family members like your parents, you can also qualify for a deduction on the interest payments for that property using the same provision. Rs. 2 lakh is the maximum tax deduction allowed for home loans on two homes in a single fiscal year.

Tax Benefits on Home Loans in the New Tax Regime

The updated tax regime no longer includes exemptions for self-occupied property interest payments under section 24. Moreover, as the new tax regime does not allow deductions under section 80C, you cannot claim an exemption on the principal amount as well.

In simpler words, you are not eligible to claim tax exemptions on both the principal amount and interest paid for a home loan on a self-occupied property according to the new tax regime.

Also Read: Things To Keep In Mind Before Going Ahead With A Home Loan For Your New Flat

What Are Some Additional Tax Advantages of Home Loans?

Each individual loan holder can claim a deduction of up to Rs 2 Lakh for home loan interest if they take a joint home loan. Moreover, individuals can also include the principal repayment in their tax returns under Section 80C, with a maximum limit of Rs 1.5 lakh each. Individuals must be co-owners of the property to qualify for a home loan deduction. Any member of the family or a friend can become a co-owner. The tax advantages apply to the interest paid if you acquire a second property with another home loan. You have the choice to claim the full interest amount. It’s advisable to seek advice from experts and make an informed decision before applying for a home loan.

To many individuals, a home represents more than just a place to live - it symbolizes stability, security, and personal achievement. With the constant increase in real estate values, it is becoming increasingly challenging to save up enough money to afford a house. Home loans provide a convenient method of borrowing money when purchasing a property. With Desai Homes, you can not only find your dream house but also receive assistance in securing home loans to make it yours. All our projects are eligible for home loans from leading banks in Kerala. We can help you overcome financial constraints to make your dream of buying a home a reality. Reach out to us today to discuss more about acquiring your ideal home from Desai Homes.

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