1. Deduction on Home Loan Interest (Section 24)
Under Section 24 of the Income Tax Act, homeowners can claim a deduction on the interest paid on a home loan. The deduction is allowed up to ₹2 lakh per year if the property is self-occupied. For let-out properties, there’s no upper limit, though the overall loss that can be set off against other income is capped at ₹2 lakh annually.
Benefit:
- Deduction of up to ₹2 lakh on interest paid for self-occupied properties
- Unlimited interest deduction for let-out properties (subject to an overall loss cap of ₹2 lakh)
2. Deduction on Principal Repayment (Section 80C)
The principal portion of your home loan repayment is eligible for deduction under Section 80C of the Income Tax Act. You can claim a deduction of up to ₹1.5 lakh per year on the principal amount repaid. This is part of the overall limit for Section 80C, which includes other savings schemes like EPF, PPF, life insurance premiums, and more.
Benefit:
- Deduct up to ₹1.5 lakh on the principal repayment under Section 80C
- Encourages savings and homeownership through tax incentives
3. Stamp Duty and Registration Charges Deduction (Section 80C)
In addition to the home loan principal repayment, the cost of stamp duty and registration charges paid during the purchase of a property can also be claimed as a deduction under Section 80C, subject to the ₹1.5 lakh limit. This deduction can only be claimed in the year in which these expenses are incurred.
Benefit:
- Deduct stamp duty and registration charges under Section 80C (up to ₹1.5 lakh)
- Available in the year of property purchase
4. Capital Gains Tax Exemption (Section 54 & Section 54EC)
When you sell a property, the profits (capital gains) from the sale may be subject to capital gains tax. However, you can claim an exemption under Section 54 if you reinvest the gains in purchasing another residential property within a specific timeframe. Alternatively, under Section 54EC, you can invest the gains in bonds issued by NHAI or REC to claim an exemption.
Benefit:
- Exemption on capital gains if reinvested in residential property under Section 54
- Option to invest in bonds under Section 54EC to save on capital gains tax
5. Additional Deduction Under Section 80EEA
First-time homebuyers can claim an additional deduction of up to ₹1.5 lakh on the interest paid on home loans under Section 80EEA, provided the value of the property is below ₹45 lakh. This deduction is over and above the ₹2 lakh limit under Section 24, offering significant tax relief to first-time homebuyers.
Benefit:
- Additional deduction of up to ₹1.5 lakh on interest for first-time homebuyers under Section 80EEA
- Encourages affordable housing by offering extra tax benefits
6. Deduction for Joint Home Loan Holders
If you and your spouse (or another co-owner) have jointly taken a home loan, both of you can claim tax benefits on the home loan interest (under Section 24) and principal repayment (under Section 80C). Each co-owner can claim deductions up to the maximum limits, provided both are contributing to the repayment and are co-owners of the property.
Benefit:
- Double the tax benefits for joint home loan holders
- Both individuals can claim deductions up to ₹2 lakh on interest and ₹1.5 lakh on principal repayment
7. Tax Deduction on Pre-Construction Interest
If you’ve taken a home loan for an under-construction property, you can claim a deduction on the interest paid during the construction phase. The total pre-construction interest can be claimed in five equal installments, starting from the year in which the construction is completed, with a maximum limit of ₹2 lakh per year.
Benefit:
- Pre-construction interest can be claimed over 5 years (up to ₹2 lakh per year)
- Helps homeowners manage the cost of under-construction properties
8. Rental Income and Standard Deduction (Section 24)
If you own a property that you rent out, the rental income is taxable under the head ‘Income from House Property.’ However, you can claim a standard deduction of 30% on the net annual value (rental income minus property taxes) to cover expenses like maintenance and repairs. Additionally, you can claim a deduction for the interest paid on a loan for the let-out property.
Benefit:
- 30% standard deduction on rental income to cover maintenance and repairs
- Deduction on home loan interest for let-out properties without any upper limit
Conclusion
Owning property in India not only provides a sense of security and long-term financial growth but also offers a host of tax benefits. Whether you’re a first-time homebuyer, an investor in rental properties, or looking to save on capital gains, Indian tax laws provide several avenues for tax relief. To maximize your savings, it’s essential to understand these provisions and consult with a tax professional to ensure you are making the most of the deductions and exemptions available to you.
