Home Loan Tax Benefits 2020-21 to Your Rescue 

If you are looking for ways to reduce your income tax liability, housing loan tax exemption is an effective way forward. All you need to do is take a home loan and invest in buying a house.

Home loan tax benefits 2020-21 is one of the many advantages of investing in real estate in India, because, under the Income Tax Act of 1961, you are eligible for housing loan tax exemption. You can get tax benefits on the principal loan amount, interest paid, stamp duty, etc.

If you are not fully aware of home loan tax benefits under various sections, you may miss out on the benefits. Below, we have compiled the various home loan tax benefits in India, to make it convenient for you.

What Kind of Income Tax Rebate on Home Loan in India Can You Claim? 

Income Tax Rebate on Home Loan - First Home Loan

This is the first ongoing home loan that you are repaying. A person who has availed a home loan and purchased a new house is eligible for housing loan tax exemption, whether the house is meant for self-occupation or to rent out.

Income Tax Rebate on Home Loan - Joint Home Loan

This is the joint home loan on the same home that you have taken along with a relative - generally a brother, parent, son, husband or wife.

Income Tax Rebate on Home Loan - Second Home Loan

This is the second ongoing home loan that you are repaying along with the first ongoing home loan that you are also repaying.

Home Loan Income Tax Benefits 2020-21 in India 

Here are the five important facts about the various sections under which you can claim tax deductions on the home loan.

1. Deduction on Home Loan Principal Repayment 

The EMI of a home loan has two components – the principal component and the interest component. Under Section 80C, you can avail a tax deduction maximum up to Rs. 1.5 lakhs for repayment of the principal component of the home loan. To avail such a deduction, the construction of the said property must be completed within 5 years from the end of the financial year in which the home loan was taken. However, make sure not to sell the property within 5 years of possession. If the property is sold within 5 years, tax deductions availed until then would be reversed, and the same would be added to your income in the year of sale. You would have to pay taxes on that amount as applicable.

2. Deduction on Interest Payment, Post-Construction 

According to home loan interest tax benefit under Section 24b, out of the interest component of the EMI paid during the financial year, a deduction of up to Rs. 2 lakhs can be claimed (from Assessment Year 2018 – 2019 onwards), for a self-occupied house. If you have let out the property, there is no upper limit for claiming home loan interest tax benefits, and you can avail a deduction of the entire amount paid as interest. But if the owner of the property is residing at another place, the maximum tax deduction allowed is Rs. 2 lakhs, and it can be claimed from the year in which the construction of the house is completed.

3. Deduction on Interest Payment, Pre-Construction 

Generally, people take loan and start paying EMI of loan even before they get possession of the property, as the property is still under construction. Section 24b allows you to avail home loan tax benefits from the time of taking loan to the time of completion of constriction. The deduction can be claimed on interest paid during such pre-construction, up to a period of five years.

4. Deduction on Stamp Duty Paid 

Under Section 80C, a one-time deduction of maximum up to Rs. 1.5 lakhs for stamp duty and registration charges can be availed. This income tax rebate on home loan can only be claimed in the year in which these expenses have been incurred.

5. Deduction on Joint Home Loan 

As mentioned earlier, you can take a joint loan with your family member – spouse, parent, son, or brother, and be co-owners of a property on which the loan has been taken. In such a case, each of the loan holders can claim deductions up to Rs. 1.5 lakh under Section 80C on principal payment, and up to Rs. 2 lakhs under Section 24b on interest payment. To claim this deduction, the two joint home-loan beneficiaries should also be co-owners of the property taken on loan. This is a large tax benefit on home loan in India.

Additional Income Tax Rebate on Home Loan 

Over and above the five kinds of housing loan tax benefits mentioned above, here are a couple of additional tax rebate elements you can take advantage of.

(i) Under Section 80EE 

You can avail additional deduction under Section 80EE up to Rs. 50,000, if the amount of loan taken is Rs. 35 lakhs or less and the value of the property does not exceed Rs. 50 lakhs. The key condition here is that on the date of sanction of loan, you should not own any other house.

(ii) Under Section 80EEA 

You can avail deductions up to Rs 1.5 lakhs under Section 80EEA, if the stamp value of the property does not exceed Rs. 45 lakhs. The loan must have been sanctioned between 1 April 2019 to 31 March 2020, and on the date of sanction of loan, you should not own any other house. This benefit is applicable to only those individuals who are not eligible to claim deduction under section 80EE. - that is to say, if you are eligible for deductions under 80EE, then you are not eligible for deductions under 80EEA

Income Tax Benefits on Home Loan - the Second Home Loan 

• Just as in case of first home loan, under Section 80C, you can avail a tax deduction maximum up to Rs. 1.5 lakh for repayment of the principal component of the second home loan.
• If the second home is vacant, then home loan interest tax benefit claimed on the first and second home loan cannot exceed Rs. 2 lakhs.
• If the second home is let out on rent, you can claim home loan interest tax benefits on the loan without any upper limit.
• You can, of course, avail standard deductions of 30% on the rental income from the property and the municipal taxes paid.
   

Of course, these income tax benefits on home loans in India are recurring annual benefits. You can claim these deductions on home loan every financial year. Thus it is financially beneficial to avail a home loan.