Tax deductions for homeownership you should know about

Owning a home is a dream many of us hold on to. It marks the beginning of a new phase in our lives, one filled with hope and joy through an upgrade to our quality of life. Unfortunately, for many Indians, homeownership remains but a dream.

As the cost of real estate in metro and tier 2 cities continues to rise, property ownership seems to be a privilege that moves further away from reality with every year. According to the Centre for Social and Economic Progress, house prices have gone up by 3.7% p.a in the last 4 years and 9.3% between 1991 and 2021.

Fortunately, the Government of India has introduced initiatives to incentivise property purchases and grant several tax breaks to promote homeownership.

Repayment of principal amount under section 80 C

Homeowners are permitted to afford a maximum deduction of ₹1.5 lakh for home loans on self-occupied properties. Additionally, co-owners who are joint borrowers of the home loan can individually claim deductions up to the value of repayment.

However, under section 80C, this benefit will not be available if the property is not completely constructed with a certification of completion. Furthermore, the deduction cannot be claimed if the property is sold within 5 years of possession.

Payment of interest under section 24 (b)

Here, homeowners can avail a maximum deduction of ₹2 lakh on the interest paid on the home loan. Should an individual own two properties, the maximum deduction cannot cross the stipulated amount.

You can also deduct interest paid on the acquisition, repair, construction, reconstruction, or renewal of your property. For example, if you take out a loan to carry out any of the above-mentioned activities, the interest on that loan is tax-exempt and can be deducted under section 24 of the Income Tax Act.

If you are a co-owner of the property and you are also a joint borrower on the home loan, you can also apply for an exemption to the amount of your share of the loan.

Additional deduction under section 80 EE

For first-time home buyers who possess a property valued at ₹50 lakh or less and have taken out a home loan for less than or equal to ₹35 lakh, Section 80EE suggests an extra deduction of ₹50,000 for interest on housing loans. In addition to the deductions permitted under section 24(b) of the Income Tax Act, this deduction will also be allowed.

Interest on home loan under section 80 EEA

The government has increased the maximum deduction amount for interest paid by a person on a loan secured by residential property to ₹1.5 lakh under section 80EEA of the Income Tax Act. The deduction is only accessible for individual residents and properties with a stamp value of less than ₹45 lakh, as per the policies. In addition, the loan must be approved between April 1, 2019, and March 31, 2022, and the borrower must not have any other residential properties at that time.

Conclusion

Many people have the ambition of owning their own home, and fortunately, the government supports this. On the other hand, knowing the different regulations that apply to you as a homeowner will greatly assist you in better organising your taxes.

Home loans come with a price, but if you utilise them effectively, you can optimise your tax savings and drastically reduce your debt. Invest your time in researching supplementary ways, besides house loans, to lower your tax burden and save money, increasing your net worth over time.