The smart homebuyer's guide to maximising home loan tax benefits

Buying a home can be one of the most important investments of your life. However, navigating the complexities of home loan tax benefits can be daunting, especially for first-time homebuyers.

Through this guide, you will get a clear understanding of the various home loan tax benefits, so you can make informed decisions and maximise your savings. So, whether you're a purchasing a second home or a first-time buyer, dive into home loan tax benefits and discover how to leverage them to your advantage.

Home loan tax benefits in India
 

· Tax deduction on interest paid 
 

According to Section 24 of the Income Tax Act, individuals who own and reside in their property can claim a maximum deduction of Rs 2 lakhs on their home loan interest. In contrast, if the property is not self-occupied, there is no maximum limit on the amount that can be claimed as a deduction.

· Tax deduction on principal repaid

 Section 80C of the Income Tax Act allows homeowners to claim a deduction of up to Rs 1.5 lakhs on the principal payback of their home loan, irrespective of whether the property is self-occupied or not.

· Tax benefits for joint borrowers

 If the home loan is taken jointly with a spouse, both individuals can claim a deduction on the interest paid and the principal repaid. The deduction amount will depend on the share of ownership of the property.

· Tax benefits for first-time homebuyers

 According to Section 80EEA of the Income Tax Act, individuals purchasing a home for the first time are eligible to claim an additional deduction of up to Rs 50,000 on their home loan interest. It's worth noting that this deduction is separate from the Rs 2 lakhs deduction already available under Section 24.

· Tax benefits for second home buyers

 If you own a second property, you can claim a deduction on the interest paid on the home loan. Additionally, if you rent out the property, you can claim a deduction on the entire interest paid on the loan without any upper limit. Still, there is no deduction available on the principal repayment.

To avail of these home loan tax benefits, you must keep all relevant documents, such as loan statements, tax certificates, and property ownership details handy. Also, consult a tax expert or a financial advisor to understand the intricacies of the income tax benefits on your home loan.

Eligibility for tax deduction on interest paid 
 

· Must be the owner or co-owner of the property

· The property must be either self-occupied or let out on rent

· The loan must be taken from a recognised financial institution or a housing finance company

· The construction of the property should be completed within five years from the end of the financial year in which the loan was taken

Eligibility for tax deduction on principal repaid 
 

·  You must be the owner or co-owner of the property

· The property must be either self-occupied or let out on rent

· The loan must be from a recognised financial institution or a housing finance company

· The construction of the property should be completed within five years from the end of the financial year in which the loan was taken

Eligibility for joint borrowers 
 

· You must be a co-owner mentioned in the property documents

· You must be a co-borrower mentioned in the loan documents

· The property construction must be completed to claim tax benefits

Eligibility for first-time homebuyers 

To claim the additional tax deduction of up to Rs 50,000 under Section 80EEA, you must meet the following eligibility criteria -

·  You must be a first-time homebuyer, i.e. you should not own any other property on the date of sanction of the loan

·  The value of the stamp duty for the property must not exceed Rs 45 lakhs

· The loan must be approved between 1 April 2019 to 31 March 31 2022

· The borrower should not be eligible to claim a deduction under Section 80EE

Eligibility for second home buyers
 

· You must be the owner or co-owner of the property

· The property must be let out on rent

· The loan must be taken from a recognised financial institution or a housing finance company

Documents required for tax deduction on interest paid
 

· Loan certificate stating the interest paid and the principal amount

· Home loan statement from the lender specifying the amount of interest paid and principal repaid during the financial year

Documents required for tax deduction on principal repaid
 

· Home loan statement from the lender specifying the principal amount repaid during the financial year.

Documents required for joint borrowers
 

In the case of a joint loan, both borrowers need to submit the following documents to claim tax benefits. 

· Loan certificate stating the interest paid and the principal amount

· Home loan statement from the lender specifying the amount of interest paid and principal repaid during the financial year

· Agreement or deed of ownership between the joint owners

Documents required for first-time homebuyers
 

To claim the additional tax deduction of up to Rs 50,000 under Section 80EEA, you need to submit the following documents 

· Loan certificate stating the interest paid and the principal amount

· Home loan statement from the lender specifying the amount of interest paid and principal repaid during the financial year

· A copy of the agreement for the purchase of the property

· Certificate from the housing finance company stating that the loan was sanctioned during the eligible period and the borrower meets the eligibility criteria

Documents required for second-home buyers
 

· Loan certificate stating the interest paid and the principal amount

· Home loan statement from the lender specifying the amount of interest paid and principal repaid during the financial year

· Proof of rental income earned from the property

It's important to note that the documentation requirements may differ based on the specific provisions of the Income Tax Act, and it's advisable to consult a tax expert or a financial advisor to understand the documentation requirements for home loan tax benefits.

Tips for maximising home loan tax benefits

· Choosing the right loan repayment option 
 

 Under Section 80C of the Income Tax Act, you can claim a tax deduction on the principal repayment of your home loan up to a maximum of Rs 1.5 lakhs. It's advisable to opt for a loan repayment option that allows you to pay a higher amount towards the principal amount, as this can help you maximise your home loan tax benefits.

· Utilising the tax benefits for joint borrowers 
 

 If you have taken a joint home loan with a co-borrower, you can claim tax benefits on the interest paid and the principal repaid in proportion to your share in the loan. This can help you maximise your tax benefits, especially if your co-borrower falls in a higher tax bracket than you.

· Planning for prepayment of home loan 
 

 If you have the financial means, it's advisable to prepay your home loan. Prepayment can help you save on the interest payable and reduce the loan tenure. Additionally, if you plan to prepay the loan using your savings, you can utilise the tax benefits on the home loan interest paid up to the date of prepayment.

Note – Home loan tax benefits are subject to various provisions of the Income Tax Act, and the benefits may vary based on your financial situation. It's advisable to consult a tax expert or financial advisor to understand the optimal strategies based on your situation.

Conclusion
 

Home loan tax benefits in India can be valuable for individuals looking to save on taxes while financing their dream home. However, it is important to understand the eligibility criteria, necessary documents, and optimal strategies for making the most of these benefits.

Wondering how to maximise these tax benefits? Choose a home loan that's right for you. With IDFC FIRST Bank Home Loans, enjoy the benefits of attractive interest rates and a range of product variants that cater to your needs. With longer tenures and loan offerings ranging from Rs. 1 lakh to Rs 1 crore, you get a home loan that works for you and helps make your dream of owning a home a reality. 

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.