Individuals owning residential properties are referred to as homeowners, Homeowners are provisioned with certain legal rights and obligations. Tax Deduction on Home Loans is one such avail proffered by the Government of India. To utilize these tax benefits it is important to understand the legal provisions associated with home loans, which will be dealt with in this article.
Who Can Claim Tax Benefits from Home Loans?
The person claiming tax benefits should be the owner of the property, in the case of co-ownership of self-occupied property for a joint home loan both co-borrowers can claim a deduction concerning the shares owned by them. To claim the benefits of a home loan the loan must be taken for the construction of a house or the purchase of a property and it should be completed within five years from the date of taking a loan.
Suppose X wants to claim tax benefits of home loan for renovation of a property, Will X succeed?
Yes, X can claim the deductions under Section 24 of the Income tax act allows to avail tax benefits on home loan for renovation of property upto an extent of Rs.30,000 per annum.
Section 24 of the Income Tax Act 1961 deals with interest on home loans and also the exemptions that can be claimed on interest payments. Further section 80 EE of the Income Tax Act deals with interest benefits on residential properties that can be claimed till the repayment of the full loan amount, the deduction can extend to a maximum amount of Rs. 50,000 per financial year.
Old Tax Regime v New Tax Regime
To ensure an impartial and sustainable tax system in India Tax regimes were introduced, In the 2020 Budget a new tax regime was also implemented giving citizens an option to choose between old and new tax regimes. New Tax regimes offer lower tax slabs as compared to old regimes but render limited deductions.
| Deductions | Old Tax Regime | New Tax Regime |
| Principal Amount Deduction – Section 80C | Section 80C of Income tax act provides for deduction on principal amount. The maximum deduction that can be availed is Rs. 1.5 Lakhs provided it is a self occupied property. | No deduction on principal amount for self occupied property. |
| Additional Deduction – Section 80EE | Home buyers can avail the deductions on interest having evinced that the loan amount does not exceed above Rs.35 Lakhs and the property’s value is Rs.50 Lakhs or less. This provision is valid for loans sanctioned till 31st March 2017. if the loan was sanctioned between 1st April 2019 and 31st March 2022 one can claim a deduction of Rs 1.5 Lakhs under section 80 EEA. | New tax regime does not provide deductions to individual borrowers under section 80EE. |
Budget 2023-24 proclaimed the new tax regime to be the default tax regime. Citizens can choose the tax regime according to the deductions they desire, within the specified timeslot. New tax regimes have lower tax rates as compared to old tax regimes.
The old tax regime allows interest deductions up to rupees two lakhs paid on both rented and self-occupied properties and a Principal amount deduction up to Rs 1.5 Lakhs is possible as per section 80C of the Income Tax Act, apart from principal repayment deduction section 80C can be claimed for stamp duty and registration charges deductions to an extent of Rs 1,50,000.
In case of joint ownership each owner can claim benefits concerning their shares to a maximum amount of Rs. 1,50,000. The new tax regime provides no deduction on interest for self-occupied properties but for rented properties same as that of the old tax regime (i.e., upto Rs 2 lakhs lakhs), and no deduction of tax on the principal amount.
Conclusion
Homeowners are bestowed with tax breaks by the government to assist borrowers in effectuating their dream home and also to promote individuals to invest in property. Home loan is a secured method of lending at the security of collateral. One can avail deductions on home loans under the Income tax act. Whilst having a financial cost home loans can maximize your savings if utilized meticulously.
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