What is the Income Tax Benefit on a Home Loan in 2023?

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When you apply for a home loan, it helps you fund your dream to buy your own house. You’ve probably already looked through numerous loan schemes and have availed of the best home loan in India.

Now, the Indian Government wants you to invest in property in India and thus offers several tax benefits that can be availed when you get a home loan. So if you have an existing house loan, you can use the available tax benefit on a home loan to reduce your overall income tax. Here are further tax benefits on a home loan:

Tax Benefit on Home Loan Purchase in India

Here are the tax benefits you can claim from your home loan components:

Deduction on Principal Repayment

Your home loan repayment is divided into interest and principal repayment.

Under Section 80C of the Income Tax Act, you can get a deduction on the principal portion of the EMI paid on any of your self-occupied or let out properties. If you have a second home and pay EMI on it, you can get a deduction for principal repayment on the second house property.

In total, you can claim a 1.5 lakh deduction for principal repayment in your income tax. This includes repayment of the principal loan amount on all your properties.

The 1.5 lakh limit includes all other deductions you can claim under section 80C, such as fixed deposits, provident funds, etc.

However, you cannot sell the house within five years of getting the possession. If you do sell it, the tax benefit will be applied to your income in the year you sell the house.

Deduction on Interest Paid

Even if you choose the best home loan in India, you still need to pay high interest on your home loan.

Under Section 24, you can claim a deduction of up to 2 lakhs on the interest portion of the EMI payment on your self-occupied property.

There is no maximum limit of interest repayment deduction for let out property. You can include all the interest repayment in the tax deduction.

Deduction for Stamp Duty and Registration

All property loans carry a fee for stamp duty and home loans. You can get tax benefits for this payment under Section 80C of the Income Tax Act. You can claim the deduction only in the year when the expenses are incurred and cannot be carried forward.

Any deductions you claim under section 80C have a maximum total limit of 1.5 lakh. This means that your principal repayment, stamp duty charges, and any other expenses you can claim as a deduction have a total overall limit of 1.5 lakh.

Deductions for Joint Home Loan

Getting a joint home loan has numerous benefits, such as being able to get a higher loan and sharing the repayment burden. And it has similar tax benefits too.

If you have a joint loan, both borrowers can each claim up to 2 lakhs towards interest repayment on your loan.

Deduction for Interest on Under Construction Property

If you have an under-construction property that is still unoccupied but still paying EMI, you can get a tax benefit from your payment.

For such EMIs, you can get a deduction on pre-construction interest. This deduction can be claimed equally for five years, starting when you acquired the property or completed construction.

The maximum total deduction you can claim for pre-construction property is two lakhs.

Additional Deductions

Under Section 80EEA, you can get a maximum deduction of 1.5 lakh on the condition that the stamp value is less than 45 lakhs. The loan should be sanctioned between 1 April 2019 to 31 March 2022.

Also, the borrower should be a first-time homebuyer to claim this deduction.

Conclusion

Tax rules keep changing, but in the 2021 budget, the Indian Government announced a lot of tax deductions for property buyers in India. So if you have an existing house loan, you can use the available tax benefit on a home loan to reduce your overall income tax.

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