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You are qualified to invest in a housing property and to take advantage of the income tax deductions outlined in Section 80C regardless of your employment status. Both the principle payments and the interest portion of your EMI are eligible for a home loan tax advantage.
Deduction on repayment of principal amount of home loan
The principal repayment and interest paid make up the two components of the EMI you pay. Under section 80C of the Income-tax Act of 1961, the majority of the EMI is deductible for self-occupied property. When buying a house, stamp duty and registration costs are deductible under Section 80C. Note that if you have a second home that is empty or if your parents live in it, that second home will likewise be considered self-occupied. If you have rented out your second home, it will be referred to as ‘Let out property.’
ITR filing FY23-24: Want to reduce tax outgo? Know which deductions you can claim in old and new tax regime
Deduction on interest paid on a housing loan
Both the interest paid on a home loan and the principal paid back on the loan are deductible by an individual filing taxes. Section 24 permits a deduction of interest paid on a home loan for self-occupied property, up to a total of Rs 2 lakh every fiscal year. Interest payments over Rs 2 lakh in the case of self-occupied property will not be carried forward or deducted from any other income category, including wages, capital gains, etc.
Section 24 also pays the interest on any mortgage loans taken out for the second house if you own two properties, one of which is unoccupied or inhabited by your parents. In a fiscal year, the total tax deduction for house loans for two residences cannot be more than Rs. 2 lakhs.
Additional deduction on buying an affordable house
If you bought your property in the affordable housing category, you are eligible for an extra deduction on the interest paid on the mortgage loan used to acquire it. Under section 80EEA, deductions are allowed up to Rs 1.5 lakh each fiscal year. A maximum of Rs 2 lakh can be deducted in addition to the amount allowed under section 24. In the event that a tax payer buys a moderately priced property, they can deduct up to Rs 3.5 lakh in a fiscal year.
Keep in mind that you cannot claim the same amount under two different provisions. For example, if you spent Rs. 1.4 lakh in interest on a house loan this fiscal year, you can claim a deduction under Section 24 or Section 80EEA.
Deduction under section 80EE
This deduction was reintroduced for first-time homeowners who took out mortgage loans in fiscal year 2016-17. Taxpayers who obtained a house loan in FY 2016-17 were entitled for an additional tax deduction of up to Rs 50,000 under Section 80EE. Currently, under Section 24, a house loan borrower who pays interest on the loan can deduct that interest from his or her gross yearly income up to a limit of Rs 2 lakh. The Rs 50,000 deduction, introduced in Budget 2016, is in addition to the Rs 2 lakh ceiling.
To be eligible for this deduction, you must fulfil the following requirements:
a) Only residential house property will be eligible for the increased deduction for loan interest.
It is solely available to first-time homebuyers.
c) The annual maximum additional benefit is restricted to Rs. 50,000.
d) The house’s worth cannot exceed Rs. 50 lakh when a loan is applied for.
e) The loan cannot be for more than Rs 35 lakh.
f) The loan has to be sanctioned between April 1, 2016 and March 31, 2017.
If you took out a house loan in FY 2016-17, you can continue claim this deduction until the loan is fully paid off. This tax incentive is not available for new home loans made after April 1, 2017.
A maximum deduction of Rs 5 lakh could be available to you if the necessary conditions are satisfied. The total amount of housing loan-related deductions is Rs 2 lakh under Section 24 and Rs 1.5 lakh under Sections 80C and 80EEA. Should you plan on purchasing a new residence, you may arrange your deal in a way that allows your loan to maximize your deductible.
How can I claim tax benefits under section 80EEA?
To qualify for benefits under section 80EEA, an individual must meet a number of requirements. These requirements are as follows:
a) The home loan must be obtained between April 1, 2019, and March 31, 2022;
b) The stamp duty on the home property cannot exceed Rs. 45 lakh;
c) The taxpayer cannot own any residential property as of the loan’s sanction date; and d) The individual taxpayer may not be qualified for a deduction under the law’s current Section 80EE.
Is home loan interest part of section 80C of the Income-tax Act?
The Income-tax Act’s section 80C does not apply to interest paid on a home loan. Section 80C, however, applies to principal repayments. Under section 80C, the principal amount of a home loan is deductable up to Rs 1.5 lakh.