Tax Savings

How Does Taking Home Loan Help You To Save Taxes?


Do you know a home loan serves more than just fulfilling your dream of having your own house?

Have you ever figured out how taking a home loan helps you to save taxes?

If NO!

In this article, we will clear all your doubts related to home loan and how it helps you in many ways.

Let’s get started without further ado!

When you own a house, you no longer have to worry about rent and other expenses.

The home loan makes it easier for you to become a homeowner.

In addition, it also offers tax benefits.

The Income Tax Act of 1961 provides tax benefits for home loans in the following sections:

  • Section 24
  • Section 80C
  • Section 80EE

Housing Loan and Its Benefits

A housing loan helps you to buy a house where you will get funding for 80% of the cost of the property. When you purchase a new home or take out a loan, you can add a co-owner or co-borrower.

The bank will mortgage your property until the loan is repaid.

Here’s a list of benefits of availing of a housing loan:

  • Tax benefits
  • Low-interest rates
  • Capital appreciation 
  • No prepayment charges
  • Balance transfer facility
  • Ease in buying a house
  • High repayment tenure
  • Tax benefits on the second house

Tax Benefits of Home Loans

To encourage people to invest in property, the government of India provides various tax benefits on home loans. 

But you can save your money only if you are aware of all the tax benefits.

There are two components to a home loan, and both are tax deductible: Principal and Interest-

SectionsNature of deductionMaximum deductible limit
Section 80CPrincipal repaymentRs. 1.5 lakh
Section 24Interest periodRs. 2 lakh

Note: You can also claim a tax deduction on stamp duty charges

  • Under 80C –                        up to Rs. 1.5 lakhs
  • Under section 80EE –         up to Rs. 50,000

Here are a few points related to home loan tax benefits:

  • If you have already made the investments under Section 80C, then there will be no benefit to the principal.
  • However, if you want to claim a deduction on interest payment, you can claim it after 5 years of construction.
  • In the event that you sell the property within five years of purchase, interest taxes are deducted from your taxable income.
  • In case you take a loan for home improvement, then interest payments will qualify for tax deduction under Section 24. These won’t lower your tax dues.
  • In the case of the joint holder, both holders can claim a deduction in their tax returns.
Principal repaymentInterest
First Holder1.5 lakh2 lakh
Second Holder1.5 lakh2 lakh

How do tax slabs affect tax benefits?

It is highly advisable to invest in buying a home if you are under the 30% tax slab.

For those who fall under the 10% or 20% tax slab, it is better to look at other options.

Options that you can explore instead of taking a housing loan for tax benefits are:

  • National Pension Scheme (NPS)
  • Family Mediclaim
  • Public Provident Fund
  • Equity Linked Savings Scheme
  • Sukanya Samariddhi account
  • Life Insurance Policy

A home loan has one major advantage that no other loan can match. The tax savings on home loan interest are governed by a separate section 24B up to Rs. 2 lakh. So you can claim the tax benefit on interest in this particular section. 

There are a few additional deductions available, which you can claim. They are:

Deductions under Section 80EE

A maximum of Rs. 50,000 is allowed under Section 80EE. If you want to claim this deduction, the following conditions need to be fulfilled:

  • The loan amount should be Rs. 35 lakh or less
  • The property value should not be more than Rs. 50 lakh
  • During the period from 1st April 2016 to 31st March 2017, the loan must be sanctioned
  • Individuals must be first-time house owners

Deductions under Section 80EEA

The government always emphasizes the importance of purchasing a house. In the 2019 Budget, this additional deduction was introduced, a maximum of up to Rs. 1,50,000

Please find below the conditions that need to be followed:

  • The property’s stamp value should not exceed Rs. 45 lakh
  • The loan sanctioned date should be between 1 April 2019 to 31 March 2022
  • The owner should be a first-time house owner
  • Can claim only one deduction out of Section 80EE and Section 80EEA

Is there an annual property tax in India for homeowners?

Yes, the house owner has to pay property taxes in India.

They can, however, claim it as an expense when calculating income under house property.

How to Claim Tax Benefits on Home Loans?

By following a few simple steps you can easily claim your tax deduction:

  1. First of all, calculate the amount of tax deduction.
  2. You should be the owner of the house or co-borrower of the loan.
  3. Submit your home loan interest certificate so that the tax deduction at source can be adjusted.

Calculation of Tax Benefits on Home Loan?

The best way to calculate tax benefits is with the help of an online calculator. Only the following fields need to be filled out:

  • Loan amount
  • Tenure
  • Interest Rate
  • Loan Start Date
  • Gross Annual Income
  • Existing Deduction Under 80C/D

A tax calculator offers several advantages:

  • Accurate results
  • Fast calculations
  • Easy to use

How is Tax Deduction Calculated on Second Property?

When one of the homes is self-occupied, and the other is vacant, individuals can claim the same tax benefits as on their first loan.

However, in let-out properties, a standard deduction of 30% on the total interest payments will be there.

Wrapping Up

We hope you got all your answers about How Taking Home Loan Helps You To Save Taxes. 

Home loans offer several benefits, but they will be most beneficial if you fall into a higher tax bracket.

If you still have any doubts, you can consult a financial expert like Piramal Finance.