Tax Benefit on Home Loans as per Budget 2020

Monisha Chaudhary

10 Jul, 2023

A home loan can help an individual in saving tax as per the provisions provided under the Income Tax Act, 1961. After the announcement of the Budget 2020 by our Finance Minister, Ms Nirmala Sitharaman, Tax Benefit on Home Loans remain unaffected. While on the other hand, the timeline for availing loans for affordable housing has been extended further for a year, i.e. till 31 March 2021. Even though a housing loan can help an individual in getting a house of his own, but it can also turn out to an expensive affair at the same time. However, the tax Benefit on Home Loans various tax benefits that come within the purview of such a loan helps the individual in saving a good amount of money every year. In this blog, we would be dealing with the various benefits available and annexed with the concept of home loans.

Tax Benefits on Home Loan for the Financial Year 2020-2021

The following table showcased the tax benefits provided under the corresponding sections of the Income Tax Act, 1961 –

Tax Benefits on Home Loan provided under Section 24

Following listed are the yearly deductions concerning the interest paid by an individual on his or her property loan. The related details are as follow –

1. If the property owned by an individual is a self-occupied one, then he or she can claim a maximum deduction of Rs 2 lakh.
2. If in case the individual has let out his or her property on rent, then he or she can claim any amount paid by him or her as interest. There is no prescribed limit.
3. If an individual is both a co-borrower and co-owner of the concerned house, then he or she can claim up to the maximum deductible amount provided for each under this section.
4. The deduction of Rs 2 lakh is applicable only if an individual complete the property (for construction) within a period of five years (Earlier the limit was three years, but now it has increased to five years from the Financial Year 2016-2017 onwards). Further, if the construction of the concerned property is not completed within this period, then he or she can claim deduction only up to Rs.30, 000.
5. If in case the property is given out on rent, then the individual can claim any amount actually spent as an interest, irrespective of the fact it is completed or not.

Further, it is significant to note that the tax deduction of Interest on Home Loan provided under Section 24 is deductible only on payable basis, i.e. on an accrual basis. Hence, the deduction allowed under Section 24 of the Income Tax Act, 1961 must be claimed on a yearly basis, even if in case no payment has been made throughout the year as compared to Section 80C which allows only for a deduction on payment basis.

Tax Benefits on Home Loan provided under Section 80C

Section 80C deals with the principal amount deductions –

1. For both the self-occupied and let-out properties, a taxpayer can claim up to Rs 1.5 lakh as a deduction every year.
2. A taxpayer is also required to first to complete the construction of the concerned property, and only then he becomes eligible to claim the deduction.
3. In order to claim the deduction provided under section 80C, the taxpayer should not sell his or her house within a period of five years after possessing it.
4. If in case the concerned taxpayer sells his or her house within a period of five years after possession, any deduction claimed earlier will be reversed in the year in which he or she sells the house. Further, this amount will also be added to his income for the year of sale.
5. If in case the taxpayer is both a co-borrower and co-owner, then he can claim each up to Rs. 1.5 lakh as a principal deduction.
6. Lastly, the individual taxpayer is also eligible to claim the stamp duties and registration fees paid regarding his or her property under this section.

More on Tax: Salaried? You need to file Income Tax Return!.

Tax Benefits on Home Loan provided under Section 80EE

If an individual is buying a house for the first time, then he or she becomes eligible to claim the following interest deduction also along with the benefits already mentioned under Sections 24 and 80C –

1. The concerned individual must have taken the home loan between the period starting from 1 April 2016 and ending on 31 March 2017.
2. The concerned property must be of value less than Rs 50 lakh.
3. The amount of the home loan taken must be less than Rs 35 lakh.
4. Further, an individual can claim an additional interest of an amount up to Rs.50,000 every year till the time he or she repays the loan

Tax Benefits on Home Loan provided under Section 80EEA

The maximum tax deduction allowed under the newly made section, i.e. section 80EEA is Rs. 1, 50,000.  Further, this incentive would be over and above the tax deduction provided under Section 24 of Rs. 2, 00,000 and under Section 80C of Rs. 1, 50,000. Following listed are the conditions for availing this deduction –

Deduction Regarding Joint Home Loan

If in case the housing loan is availed by two or more persons, then, in this case, each of them is qualified to claim a deduction up to Rs 2 lakh each on the interest paid. Further, tax can be deducted easily on the principal paid as well for an amount up to Rs 1.5 lakhs each. However, it is significant to note that all the applicants must also be the co-owners of the property in order to claim this deduction. Hence, a joint home loan can provide better and greater tax benefits.

Home Loan Tax Benefits of Owning a Second Property

As per the prevailing provisions, if a taxpayer has more than one self-occupied property, then, in this case, only one of them will be considered as self-occupied property. For the other property, he or she will have to pay tax based on notional rent. Further, the taxpayer is free to choose either of his properties as the self-occupied one to maximize tax benefits.

According to the finance budget announced in the year 2019, it was declared that the second self-occupied home could also be considered as a self-occupied one, instead of it being considered to be let out on rent. This will result in the prevention of paying tax on the basis of notional rent, and will also help the owner in saving money. Lastly, it will also help the taxpayer in claiming tax deductions for the second property as well.

How to Claim Tax Benefit on Home Loans?

A taxpayer can easily claim tax benefits on the take a home loan by following a simple process. Listed below are the steps required for claiming tax deduction –

Step 1 – First and foremost step is to calculate the tax deduction to be claimed.

Step 2 – In the next step, the taxpayer is required to make sure that the house is in his or her name, or he or she is the co-borrower of the loan.

Step 3– Now, the taxpayer is required to submit the home loan interest certificate to his or her employer to adjust the TDS (tax-deductible at source).

Step 4 – If in case the taxpayer is unable to perform the above-mentioned step, then he or she would have to file the tax return on their own.

Step 5 – If in case the concerned taxpayer is self-employed, then he or she is not required to submit the above-mentioned documents anywhere. But, is just required to keep them handy if in case the Income Tax department raises queries in the future.

How to Calculate Tax Benefit on Home Loans?

The easiest way of calculating tax benefits on a home loan is by using an online calculator. The concerned taxpayer is required to simply enter his or her home loan details and then click on calculate option and a detailed tabulation will come up. The details the concerned taxpayer will generally need are –

1. Loan Amount
2. Tenure
3. Interest Rate
4. Starting Date of the Loan
5. Gross Annual Income
6. Existing Deduction Under 80C

Conclusion

Even though a housing loan can help an individual in getting a house of his own, but it can also turn out to an expensive affair at the same time. But, now after the announcement of the Budget 2020 by our Finance Minister, Ms Nirmala Sitharaman, the timeline for availing loans for affordable housing has been extended further for a year, i.e. till 31 March 2021. Further, various other tax benefits have been provided under section 24, 80C, 80EE, 80EEA of the Income Tax Act, 1961. Also, the tax benefits are also provided to those people who are either acting as a Co-owner or are Owning Second Property. Hence, the Budget 2020 has provided Tax Benefits to every individual, whether he an owner or co-owner or a tenant.

Also, Read: What are the Income Tax Laws for Startups in India.