The Union Budget 2021 proposed the extension of the timeline to March 31, 2022, for claiming an additional deduction of ₹1,50,000 on interest payments on home loans. So, if you have recently taken a housing loan or have an ongoing one, you must know about the applicable home loan tax benefits.

So, let’s take a look at the tax benefits of a home loan.

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What Are the Tax Saving Benefits of a House Loan?

Deduction on Home Loan Interest

Under Section 24 of the Income Tax Act, 1961, taxpayers can avail of deduction on their interest paid on home loans. The maximum sum available for this deduction is ₹2,00,000 for a financial year in the case of self-occupied residences.

Furthermore, if an individual has 2 residential properties, wherein the second one is either empty or occupied by parents, then the interest paid on the second house is also available for deduction under Section 24.

That said, taxpayers should note here that the total deduction on the interest paid for 2 houses should not exceed ₹2,00,000 in a given financial year.

Deduction on Repayment of Home Loan Principal Amount

Tax benefit under 80C allows the principal portion of the loan’s EMI paid annually as a deduction. The maximum sum that you can claim under Section 80C is ₹1,50,000.

However, to claim this deduction, one’s property must not be sold within a period of 5 years of possession. Else, the claimed deduction gets added back to his/her income in the year of sale.

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Additional Deduction on Purchasing an Affordable Home

If one has purchased a home under the category of affordable housing, he/she can claim an extra deduction on the paid interest on its home loan. Moreover, this deduction can be claimed under Section 80EEA of the Income Tax Act, 1961, and for a maximum amount of ₹1,50,000.

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Deductions Under 80EE

Under Section 80EE, first-time homebuyers can claim an additional deduction of up to ₹50,000. Also, the deduction is available over and above the limit of ₹2,00,000 of Section 24.

Processing Fee Is Tax-Deductible

Tax benefit under Section 80C allows deductions against processing fees. So, taxpayers can claim deductions for the registration charges and stamp duty incurred while purchasing a house.

Loan From Friends and Relatives Is Eligible for Tax Deduction

Under Section 24, interest repayment for home loans taken from relatives or friends is eligible for a tax deduction. However, there are a number of restrictions that taxpayers must bear in mind. These restrictions include the following:

• An individual cannot accept a loan of over ₹20,000 in cash or bearer’s cheque. Moreover, the transaction must be completed through an electronic transfer, payee cheque, or bank draft.
• Repayment of the loan should be made partially or wholly through cash or bearer cheque and up to ₹20,000.
• Transactions should take place between Indian residents or between Indian and non-Indian residents (NRIs).
• A resident of India can take foreign exchange loans from a close non-resident relative(s), wherein the loan amount shall not exceed 250,000 USD in a financial year.

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Moreover, you can opt for the old regime for taxation, which allows exemptions and home loan tax benefits like the ones discussed above. Alternatively, you can go for the new tax regime and avail of lower tax rates without any deductions or exemptions.