Buying a home is a long-term goal for almost everyone. But, as it is a huge capital investment, we always have to think about whether to sell existing assets to buy a house or to take a home loan.
Home loan is a huge debt that lingers on for several years. But with smart planning and correct tax knowledge, you can save a lot on your taxes if you are taking a home loan.
A home loan repayment consists of two parts: the principal amount and the interest paid on the amount borrowed. Now, section 80C allows you to claim a deduction on the principal amount and section 24(b) allows you to claim a deduction on the interest amount. Further, there are sections 80EE and 80EEA that allow you to claim extra benefits.
Let’s understand in a bit more detail:
Deduction u/s 80C
You can claim a deduction under Section 80C for the principal amount you’ve paid on your home loan’s EMI in a given year. The maximum deduction you can claim is up to Rs 1.5 lakh.
Just remember, there’s a crucial condition: You must not sell the house property within five years of possession. Otherwise, the deduction you previously claimed will be added back to your income in the year of sale.
Deduction u/s 24(b)
Section 24(b) allows you to deduct the interest you’ve paid on your home loan EMI from your total income. To be eligible, the loan must be used for the purchase or construction of a house, and the construction must be completed within five years from the end of the financial year in which you took the loan.
If the property is self-occupied, you can claim a deduction of up to ₹2 lakhs.
But if you’re not living in the house, you can claim the exemption for the entire interest amount.
Deduction u/s 80EE
Section 80EE is a special provision for first-time home buyers. You can claim a deduction of up to ₹50,000 on the interest paid for your home loan, in addition to what you claim under Section 24(b). Here are the key conditions:
- It must be your first house property.
- The loan amount must not exceed 35 lakhs, and the property’s value must not exceed 50 lakhs.
- The loan sanction date should fall between 1st April 2016 and 31st March 2017.
Deduction u/s 80EEA
Similar to Section 80EE, Section 80EEA is for first-time home buyers. You can claim a deduction of up to ₹1.5 lakh on the interest paid for your home loan, in addition to Section 24(b). Here are the key conditions:
- It must be your first house property.
- The loan amount must not exceed 45 lakhs.
- The loan sanction date should fall between 1st April 2019 and 31st March 2022.
However, it is important to note that none of these deductions are allowed under the new regime except for deduction u/s 24(b) in case of a let-out property.
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