The government provides various tax exemptions and deductions on house loans to encourage people to invest in property under the Income Tax Act of 1961. It is essential for home loan borrowers to be aware of these income tax rebates as it can significantly reduce their tax obligations. The following are the tax benefits or income tax rebates available to home loan borrowers:

1. Deduction on repayment of the principal amount of a home loan: The EMI paid by borrowers includes principal repayment and interest paid. The major component of EMI can be deducted under Section 80C of the Income-tax Act of 1961 for self-occupied property. This section also covers stamp duty and registration fees paid during the purchase of a home. Note that if borrowers have a second home that is vacant or occupied by their parents, it will also be considered self-occupied. If they have rented out their second home, it will be referred to as ‘Let out property.’
2. Deduction on interest paid on a housing loan: Taxpayers can deduct the interest paid on a house loan as well as the principal amount repaid on the loan. In the case of self-occupied property, Section 24 allows a deduction on the interest paid on a house loan up to a maximum of Rs 2 lakh in a given fiscal year. Interest payments above Rs 2 lakh would neither be carried forward nor offset against any other income head, such as capital gains or salary, etc. If borrowers own two homes and one of them is vacant or occupied by their parents, section 24 also covers the interest on any home loans acquired for the other home. The total tax deduction for home loans for two homes cannot exceed Rs. 2 lakhs in a fiscal year.
3. Additional deduction on buying an affordable house: An additional deduction on the interest paid on a home loan used to buy the house is available if borrowers purchased it under the affordable housing category. A maximum of Rs 1.5 lakh can be deducted under Section 80EEA in a fiscal year. This deduction is allowed for a maximum of Rs 2 lakh in addition to the deduction under Section 24. A taxpayer can claim a deduction of up to Rs 3.5 lakh in a fiscal year in case they purchase a reasonably priced home. Borrowers cannot claim the same amount twice under two distinct sections.
4. Deduction under Section 80EE: This deduction was reinstated in FY 2016–17 for first-time homebuyers who took out mortgage loans. Taxpayers who took out a home loan in FY 2016–17 were eligible to claim an extra tax deduction under Section 80EE of up to Rs 50,000. This deduction is in addition to the Rs 2 lakh limit under Section 24. To be eligible for this deduction, borrowers must fulfil certain requirements.

If the required criteria are met, the total amount of house loan-related deductions can enable borrowers to get a maximum deduction of Rs 5 lakh. To claim tax benefits under Section 80EEA, individuals must meet specific requirements. Section 80C of the Income-tax Act does not apply to interest paid on a mortgage. However, principal repayments are covered by Section 80C.

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Disclaimer: The information provided in the above post is for general informational purposes only and should not be considered as professional tax advice. Every individual’s tax situation is unique, and tax laws are subject to change. Therefore, it is recommended that individuals seek the advice of a qualified tax advisor or accountant for personalized tax advice based on their specific circumstances.

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