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Tax Benefits in Home Loans 2023

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Everyone reaches peak adulthood when they buy their first house. Whether it’s your first vehicle, apartment or house, investments play a huge role in our lives. Luckily for us, the Indian government has always encouraged its citizens to invest in houses. When you buy a house using home loans, you are eligible for many home loan tax benefits. So, to better prepare yourself for your big investments, let’s go through the number of things you can use to your advantage when it comes to tax benefits on home loans.

What Is a Tax Benefit?

Any tax law that lowers your tax liability is referred to as a tax benefit. Benefits include exclusions, tax credits, housing loan benefits in income tax and deductions, among other things. They cover a variety of topics, such as family programmes, education, employment, and natural calamities.

Some tax advantages depend on your capacity to pay taxes. For instance, the earned income tax credit and the child tax credit both take into account the expense of raising a family. Other tax advantages, such as the deductions for charity contributions and mortgage interest, are incentives aimed at advancing social policy objectives.
Read: Everything You Need to Know Before Buying Gaothan Properties in Mumbai & Maharashtra



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Type of Tax Benefits

  • Exemption: This income is exempt from taxation. Taxes are not at all due on interest income from PPF and REC tax-free bonds. For example, home loan exemption in income tax. 
  • Deduction: Interest on loans for higher education for oneself or a relative are deductible from taxable income under Sections 80C, 80D, 80E, and 80G. Investments under Section 80C of income tax act are deductible up to Rs. 1,50,000, as are medical claims for oneself or one’s parents.
  • Refund: If a refund is granted for a particular investment that was made, the real tax owed is decreased after income tax is computed.
  • Allowances: Cash payments made on top of salaries to cover particular costs. Common benefits include housing rent, LTA, education, health care, and transportation.
  • Indexation: Used to reduce long-term capital gains, which lowers taxable income, indexation lowers the purchase price of an investment to reflect the impact of inflation on it.

According to the Income Tax Act of 1961, taking out a home loan can help you save on tax. Naturally, buying a home is a huge financial ordeal but with home loan principal tax benefits, this can be much easier. 

Tax benefit for FY 2022-23

 Here are some of the updates on the income tax rebate on home loan for the financial year 2022-23.

Income Tax Act Max Deductible Amount
Section 24 ₹2 lakh per annum
Section 80C ₹1.5 lakh per annum
Section 80EE ₹50,000

New Updates (Union Budget 2023-2024)

Updates on the Union Budget
Updates on the Union Budget

Here are some highlights from Union Finance Minister Nirmala Sitharaman’s most recent budget, which was announced on February 1, 2023:
Read: Union Bank Home Loan Eligibility in India: All You Need to Know

  • The deadline to claim an extra housing loan interest deduction for the interest paid on a loan taken to buy an affordable home has been extended until March 31, 2022.
  • The deadline for claiming a tax break for affordable housing projects has been extended for another year. The new deadline has been set for March 31, 2022.
  • To encourage the availability of affordable rental housing for migrant workers, a new tax exemption has been suggested for notified Affordable Rental Housing Projects.
  • While there were no significant adjustments to the interest on home loan deduction, the allocation of Rs.48,000 crore to the Pradhan Mantri Awas Yojana was noteworthy (PMAY).
Deductions Description Applicable Section Conditions Limit
Standard Deduction 30% deduction on net annual value (NAV) of the property Section 24(a) Applicable to all residential properties Up to 30% of the NAV
Interest on Home Loan Deduction on interest paid on a home loan Section 24(b) Self-occupied property: Maximum deduction of Rs. 2 lakh per year<br>Let out or deemed to be let out property: No upper limit on deduction Up to Rs. 2 lakh for self-occupied property (no limit for let out property)
Pre-construction Interest Deduction on interest paid during the pre-construction period Section 24(b) Construction must be completed within 5 years from the end of the financial year in which the loan was taken Deduction available in 5 equal installments, starting from the year of property completion

Deduction on interest paid towards home loan during the pre-construction period

Assume you purchased a property that is still under construction and has yet to move in. You, on the other hand, are making EMI payments. In this situation, your ability to claim house loan pre emi interest on housing loan deduction begins only after construction is completed, or immediately if you purchase a finished home. (Home loan tax benefit calculator is easily available online).

So, does this mean you won’t get any tax breaks on the interest you pay between the time you take out the loan and the time you finish the project? No.
Read: Personal Loans vs Home Loans: Find the Best Fit for your Financial Needs

Read further for more information.

Pre-construction interest is a type of interest that can be deducted under the Income Tax Act. Over and above the deduction you are otherwise qualified to claim from your house property income, a deduction in five equal instalments commencing from the year the property is acquired or construction is finished is allowed. However, the highest amount that can be claimed is Rs 2 lakh.

For example, suppose you have a home loan for construction and are paying Rs 10,000 in monthly interest. After two years of construction, the house was completed in 2019. As a result, you can begin claiming the Rs 2.4 lakh (about) in pre-construction interest that you paid only when the construction is done in five equal installments beginning in 2019. Section 24(b) allows for a maximum interest deduction of Rs 2 lakh (including current-year interest and pre-construction interest).

If your house loan qualifies for a deduction under Section 80 EEA, you can claim an additional Rs 1.5 lakh deduction. Section 80EEA of income tax act will be explored later in this text.
Read: ICICI Home Loan Emi Calculator – Your Tool to make the most out of your Loan

Let’s Explore the Tax Rebate on a Home Loan that you Can Avail of Under Section 80C:

  1.  For self-occupied and also let out properties you are allowed to claim up to a maximum of 1.5 lakhs every year from a taxable income on principal repayment.
  2. You can claim rebate on home loan only once, and the stamp duty and registration charges may be included within it.
  3. It is important to remember that in order to claim the benefits under section 80C you first need to complete the construction of the property in question.
  4. You are not allowed to sell your house within the first five years after claiming this deduction.
  5. Note that if you sell your house within the first five years after claiming the deduction, it will be reversed in the year which you sell it and the amount will also be added to your income in the year of selling.

Tax Savings on Home Loans you Can Avail of Under Section 80EE

  1. On your interest payments, a proposal has been made to increase the income tax benefits by rupees 1.5 Lakhs.
  2. Under section 80EE limit, tax deductions are capped at Rs. 3.5 lakhs.
  3.  You can avail of these benefits over andabove the existing exemption of Rs. 2 lakhs under section 24(b).

The property value needs to be less than Rs.45 lakhs.

Tax Savings on Home Loans
Tax Savings on Home Loans

To claim the home loan interest tax benefit under section 80EE, one must make sure that the following terms and conditions are met.

  1. These home loan tax deduction on income tax can only be claimed on the first house that is purchased by the taxpayer.
  2. These deductions can only be claimed if the value of the house does not exceed rupees 50,00,000.
  3. The house loan tax exemption is not going to be available to claim if the home loan taken exceeds Rs.35,00,000.
  4. This home loan interest tax exemption is available to claim on the interest portion of the home loan
  5. The home loan must be sanctioned by a recognized financial institution like a bank or a housing finance company.
  6. The individual using this deduction, cannot own another house at the same time. 
  7. This deduction can only be used if the home loan is being used for residential properties, not commercial properties.

Check out more about Section 80EE from here.

Type of Deduction Maximum Deduction Amount Section of Income Tax Act Conditions for Claiming Deduction
Deduction on Interest Payment Up to Rs. 2 lakh per year Section 24(b) Property must be self-occupied or vacant
Deduction on Principal Repayment Up to Rs. 1.5 lakh per year Section 80C Applicable to both first and second property
Deduction on Rental Income Actual expenses incurred Section 24(a) Deductible: municipal taxes, repairs, interest paid
Capital Gains Exemption Reinvestment or specified bonds Section 54 Property held for more than two years

Joint Home Loan Interest Rebate in Income Tax

Joint Home Loan Interest Rebate in Income Tax
Joint Home Loan Interest Rebate in Income Tax
  1. If a home loan is taken by two people together, each of them is eligible to claim a deduction on the interest paid up to 2 lakh per person. 
  2. Tax is deducted on the principal amount as well as for an amount of up to Rs 1.5 lakhs each under home loan principal deduction section.
  3. Each applicant for the home loan has to be a co-owner of the property in order to claim this deduction.

Tax benefit on a second home loan or for a second property

  1. According to the current provision, the tax benefits are applicable only on the payable interest but you can claim the entire paid interest amount.
  2. According to the recent proposal, the second “self-occupied” home can be claimed so that borrowers save more on tax.

Home Loan Tax Benefits of Owning a Second Property

Owning a second property can come with several tax benefits, particularly related to home loans. Here are some key tax advantages to consider:

  1. Deduction on Interest Payment: If you have taken a home loan for your second property, you can claim a deduction on the interest paid under Section 24(b) of the Income Tax Act. The maximum deduction allowed is up to Rs. 2 lakh per year, regardless of the number of properties you own. However, it’s important to note that the property must be self-occupied or vacant for this benefit.
  2. Deduction on Principal Repayment: The principal component of your home loan EMI can be claimed as a deduction under Section 80C of the Income Tax Act, subject to a maximum limit of Rs. 1.5 lakh per year. This deduction applies to both your first and second property.
  3. Rental Income Tax Benefits: If you decide to rent out your second property, you can claim deductions on various expenses related to the property. This includes deducting the municipal taxes paid, repairs and maintenance costs, and even the interest paid on the home loan taken for that property.
  4. Capital Gains Exemption: If you sell your second property after holding it for more than two years, you can claim exemptions under Section 54 of the Income Tax Act. The capital gains earned from the sale can be exempted if you reinvest the proceeds in another residential property or invest in specified bonds.

The Process of Claiming Tax Benefits on Home Loans

The Process of Claiming Tax Benefits on Home Loans
The Process of Claiming Tax Benefits on Home Loans
  1. Calculate the tax deduction that has to be claimed.
  2. Make sure the house is in your name or that you are a co-owner of the loan.
  3. Submit your home loan interest certificate to your boss in order to adjust the tax-deductible at the source.
  4. If you don’t want to submit your home loan interest certificate to your boss, you will need to file the tax return by yourself.
  5. If you are a self-employed individual, it is important to keep these documents ready or in a file, so as to avoid any issues later on.

Calculating Tax Benefits on your Home Loan 

You can easily calculate your tax benefits using an online calculator. In order to calculate your tax benefits, the details you will need are, the loan amount, tenure, interest rate, loan stare date, gross annual income and the existing deduction under section 80C/D

Big investments equal big decisions and lots of thinking and planning ahead, it may be difficult at first but with a little research and a whole lot of patience, you can have the house of your dreams in no time. If you’re still looking to buy a house or get a home loan, or even a home loan transfer, NoBroker can help! Click the link below to know more about NoBroker Home Loan Services. 

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Q1. Who is eligible for the home loan interest rebate in income tax?

Ans. The owner of the property is eligible for the tax benefits on home loans, if it is a couple taking a home loan, they are both eligible, individually for the benefits. In the case of a joint loan, the people taking the home loan need to be co-owners in order to qualify for the benefits.

Q2. What if I want to claim section 80EEA every year?

Ans. Taxpayers who are paying a housing loan can claim the tax deduction on interest payments of up to Rs 1,50,000 per annum under Section 80EEA.

Q3. How can I calculate the tax benefits on my home loan?

Ans. You can easily calculate your tax benefits using an online calculator. In order to calculate your tax benefits, the details you will need are, the loan amount, tenure, interest rate, loan stare date, gross annual income and the existing deduction under section 80C/D

Q4. What are the joint home loan tax benefits?

Ans. If a home loan is taken by two people together, each of them is eligible to claim a deduction on the interest paid up to 2 lakh per person. Tax is deducted on the principal amount as well as for an amount of up to Rs 1.5 lakhs each. Each applicant for the home loan has to be a co-owner of the property in order to claim this deduction.

Q5. What are some of the trustworthy banks that offer the home loan interest exemption in income tax?

Ans. ICICI Bank, Kotak Bank, Axis Bank, HDFC, SBI, Central Bank of India, HSBC, Bank of India are just some of the many trustworthy banks where you can get your home loan from. To know more about the best banks for home loans click here.

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