Home Loan Tax Benefits Under Section 24 - The Ultimate Guide

A home loan provides you with low-interest funds you need to construct or purchase a house. You can conveniently repay the principal and interest over thirty (30) years. Additionally, you can get benefits like easy eligibility, minimal documentation, up to 90% loan-to-value, a simple application process, and fast approval.

However, the list of features does not end here. A home loan entitles you to claim tax benefitsunder several sections like Section 24, 80C, 80EE, and 80EEA.

The rules and regulations governing home loan tax benefitsunder Section 24 are different from the other sections. This article discusses everything you should know about home loan tax benefits under Section 24, so you can claim the benefits and reduce your tax outgo.

What Makes Section 24 Special to a Home Loan Borrower?

As per the Income Tax Act 1961, a home loan enables you to claim tax benefitson the principal and interest components. While Section 80C and 80EE allows you to get tax deductions on the principal component, Section 24 allows you to get home loan tax benefits on the interest component.

Under Section 24, you can save taxes up to INR 2 lakh every year. A home loanamortization calculator displays the detailed division of the EMI. On closer scrutiny, you will find that the larger portion of your EMI comprises the interest, at least during the early years of loan repayment. Home loan tax benefits under Section 24 lowers the effective EMI amount, and hence, you can construct or purchase a home in the most cost-effective way.

Home Loan Tax Benefits Under Section 24 - For Home Purchase

You can get home loan tax benefitsof up to INR 2 lakh on the interest component if you purchase a residential property for residing with your family. However, if you plan to rent out the property you have purchased, there is no upper limit to the amount you can claim as home loan tax benefits.  In case you have availed a joint home loan, both borrowers can claim tax deductions on the interest component up to INR 2 lakh.

Home Loan Tax Benefits Under Section 24 - For Under Construction Property

You can also get home loan tax benefits under Section 24 if you plan to purchase an under-construction property. However, the rules are slightly different in this case.

In the case of an under-construction property, you can claim home loan tax benefitsin five (5) equal instalments post-construction. For example, if you pay INR 10 lakh as the interest before construction, you can get home loan tax benefitsof INR 2 lakh every year from the date of the completion of construction. It is prudent to know that the maximum amount of tax deduction under Section remains capped at INR 2 lakh every financial year.

Points to Remember

The following are the things you need to remember before claiming home loan tax benefits under Section 24 of the IT Act:

1. The home loan tax benefitsunder Section 24 is available only for fully constructed residential properties.
2. You can claim tax deductions for the pre-construction period only after the constructions gets completed.
3. If you sell the property five (5) years from the construction date, the home loan tax benefits under Section 24 will be reversed.

Conclusion

If you plan to claim home loan tax benefits under Section 24, you need an interest certificate from your lender, which will contain details of the total interest you paid in the financial year. Your employer will adjust it in the Tax Deducted at Source (TDS). Alternatively, you may file Income Tax Return and claim home loan tax benefits.