Download CRED
how to calculate home loan tax benefits?

how to calculate home loan tax benefits?

July 8, 2022
5 min read
share facebookshare twittershare linkedinshare whatsapp
how to calculate home loan tax benefits?
share facebookshare twittershare linkedin

the income tax department allows home buyers to claim certain tax deductions on the home loan principal and interest repayment. the Sections of the Income Tax Act that allows tax rebate on a home loan include - Section 80C, Section 24, and Section 80EE. if you are planning to apply for a home loan or have already applied for a home loan and want to know how to calculate the home loan tax benefit, this article might be helpful for you:

income tax Sections that provide tax rebate

when you take a home loan, you make the home loan repayment to the lender in equated monthly installments (EMIs). the home loan EMI consists of two components - the principal amount and the interest payable. the Income Tax Act allows you to claim tax benefits on both these components individually. let's take a look:

Section 80C

under Section 80C of the Income Tax Act, you can claim a maximum home loan tax deduction of up to ₹1.5 lakh from your annual taxable income on the principal loan amount repayment. you may claim tax benefit on stamp duty and registration payment as well but only once. 

Section 24

under Section 24 of the Income Tax Act, you can claim a maximum tax rebate of up to ₹2 lakh on the interest payable on your home loan. however, note that these deductions are applied only on the property whose construction is completed within 5 years. in case construction does not finish within the given time frame, you can claim a tax rebate of ₹30,000 only.

Section 80EE

Section 80EE is the latest addition to the tax rebates offered by the Income Tax Department in India. Section 80EE allows first-time homebuyers to claim an additional tax deduction of ₹50,000 on the home loan interest payable every financial year. however, there are certain conditions to it, for example:

  • it's only for first time home buyers
  • home loan amount should not be more than ₹35 lakh
  • the value of the property must be within ₹50 lakh

few other important points to note

as per the income tax rules, the tax rebate is allowed only when the construction of the property is complete or you buy a ready-to-move-in property. you can claim income tax deductions allowed under the above-mentioned income tax sections every year to save a significant amount of tax provided you meet the eligibility criteria set by the Income Tax Act. 

it is very important to note that if you sell the property within 5 years of its possession, the claimed tax benefits will get reversed and added to your taxable income. if you purchase the property and let it out on rent, no maximum amount is applicable to claim as home loan tax benefit. 

if you have taken a home loan but continue to reside in a rented property you can claim tax benefits against HRA as well. in the case of a joint home loan, both borrowers can claim income tax rebate from their taxable income individually.   

follow these steps to claim tax benefit on home loan

the process to claim tax benefits on a home loan is very simple. you can follow the steps provided below:

  • make sure you are the owner or co-owner of the property
  • refer to the above-mentioned Income Tax Sections to calculate the total amount you can claim as a tax deduction
  • collect your home loan interest certificate from the lender
  • give the home loan interest certificate to your employer for TDS adjustment
  • if you could not submit the loan interest certificate to your employer, you can submit the same while filing the income tax return 
  • self-employed individuals need not submit any document to claim home loan tax benefits. they just need to keep all these documents handy if any income tax queries arise in the future.

final thoughts

now that you know all the tax rebates available on the home loan repayment, it's time to plan for your home loan application. it is very important that you make proper planning to repay your home loan comfortably without disturbing your other financial requirements. you can use the CRED home loan calculator to get help on your home loan planning. the CRED home loan calculator is an online tool that is very simple to use. the CRED home loan calculator is free and you can use it from anywhere and anytime. the CRED home loan calculator has three variables - principal amount, interest rate, and loan tenure. you can input these three variables in the CRED home loan calculator to find out the monthly EMI payable along with the total interest and overall repayment you need to make to clear off your home loan debt. 

use the CRED home loan calculator now