Section 24 of Income Tax Act – Home Loan Interest Tax Benefit
Interest rate is the major considering factor of a home loan, which largely impacts its affordability. It signifies the cost of borrowing that borrowers are mandated to pay for the credit they avail. With high rates, the total interest outflow towards the loan repayment is also expensive and vice versa. To relieve borrowers from financial stress, the Indian Income Tax Act, 1961 allows home loan tax exemption on payable interest.
When borrowers pay EMIs towards the repayment of a housing loan, Section 24 of the IT Act entitles them to enjoy tax deductions on the payable interest value. The maximum amount to claim is capped at Rs.2 lakh per annum, increased from Rs.1.5 lakh in 2014.
More things to know about Section 24
- To enjoy this tax benefit, the home loan must be taken to purchase a residential property that is ready to move in or to construct one.
- However, the construction of the property must be completed within 5 years. In case construction doesn’t finish within this given deadline, the tax benefit gets reduced to Rs.30,000 only. Individuals can also check out the tax benefits on an under-construction property.
- If the particular house in concern is rented and not-self-occupied, the maximum limit gets waived off. Borrowers enjoy house loan tax exemption on the entire interest amount paid towards repayment. Also, there is no restriction on the sale of property, unlike Section 80C of the same Act.
- Joint home loans come with lucrative benefit. Here, each co-applicant is eligible to claim tax benefits of home loan individually under Section 24 of the Income Tax Act of India. The maximum amount each can claim is up to Rs.2 lakh.
- Taxpayers can claim tax exemption on home loan in five instalments once the construction is fully completed.
How to claim tax benefits on home loan?
The process to claim tax benefits is simple.
Step 1: First, borrowers have to calculate the total tax they are liable to pay using an online income tax calculator. This tool is free and easy to use. It eliminates any manual calculation and displays the results instantly based on certain inputs provided by users. These inputs include annual income, interest paid, repaid principal and others.
Step 2: Next, they need to submit the interest certificate of their home loan to employer if they are a salaried person. Their TDS will be adjusted by the organization as necessary. Self-employed individuals, however, need not submit any such document to anyone. They must keep those ready in case of queries from the IT department later.
Apart from the payable interest, the principal repayment amount is also eligible for tax exemption under Section 80C. Here, the maximum amount to claim is Rs.1.5 lakh.
To enjoy this income tax benefit on home loan, borrowers first need to apply for the credit. They must know the reasons lenders may reject a home loan application so that they can ensure their eligibility. They can also compare the interest rates provided by various lenders currently and choose the one with attractive features and benefits. Next, they have to fill up an easy application form online or look for pre-approved offers from housing finance companies.
Pre-approved offers not only simplify the process of loan application but also help save time significantly. Such schemes are personalised for existing customers and available on a range of financial products like home loans, loans against property, etc. Borrowers can check their pre-approved offers by providing some basic details only.
As real estate costs are higher and RBI repo rate increased to 5.40% on 29th August 2022, the interest rates are also expected to increase. Potential borrowers must note that even a small hike or reduction in these rates can have major implications on their finances sooner or later. Hence, it is crucial for them to opt for a comparatively lower rate of interest and claim the home loan tax exemption applicable under Section 24 to save significantly.