[2021] Benefits Of Home Loan - Tax Deduction

If you want to take a home loan then this is the right time for you because at that time you are being given home loan at very low interest rate. Usually the big banks that are there give home loan at 7% interest rate or also you get tax benefit from 3 years. Friends, if you try to save tax from 3 years, then you can claim tax of 4,18,661 every year. Because of this, your tax can be reduced by up to Rs 1,30,622. Friends, today we will tell you in this article how you can save tax by taking home loan. Friends, the government gives us a chance to claim tax on home loan in 3 ways.

3 Types Of Tax Benefit

  • Tax decuctions on Principle payment U/S 80C
  • Tax decuctions on Interest Payment U/S 24B
  • Tax decuctions on Extra Interest U/S 80EEA

Benefits Of Home Loan - Tax Deduction

Note - These 3 types of tax benefits have their own limit, about which I will tell you in details. But before that the resolution of the interest payment or principal payment is very important. Because tax deduction is taken on this basis. After taking a home loan, you also have to pay it. You pay the home loan in installments. You have to pay EMI every month, the amount of EMI is same every month. But this EMI is considered to have 2 parts. In which the first part is the principal payment, the second part is the interest payment.

In the initial years, the interest part in EMI is very high, but later on the interest part is less and the principal payment part increases, usually the bank itself gives you the schedule of EMI, in which it is clearly written how much part How much went to the principal payment and how much went to the interest payment.

To claim tax deduction, you have to look at the interest payment or principal payment separately. We have fixed the EMI for you on a spread sheet

Benefits Of Home Loan - Tax Deduction
Benefits Of Home Loan - Tax Deduction

In this, we assume that a person has taken a loan of Rs 4500000 for 20 years or the interest rate of the home loan is 7%, the EMI of the month on this home loan will be Rs 34888. Both the interest and principal are part of this EMI. In the first month, the interest of 4500000 was Rs 26,250, after leaving the EMI, Rs 8,638 is left in it. Now this amount will be used for the principal payment.

8,638 which is being used towards the principal payment will reduce the outstanding balance for the next month. Meaning that the outstanding principal balance in the month of May will be Rs 44,91,363. Now its 1 month interest will be Rs 26,200. If you reduce the interest in EMI, then an amount of 8,689 will be left for the principle payment. If we look carefully, as we move forward, the interest payment amount is decreasing or the principle payment amount is increasing.

To claim the home loan tax deduction, every year we have to look in our EMI schedule to see how much money has gone towards interest payment or principle payment.

As you can see in the image, EMI of 4,18,661 amount has been filled in this schedule for the year 2021-2022, out of which Rs 3,11,609 has gone in interest payment or the rest in principal payment.

Now I will tell you how tax deduction is available on the principal payment we make every year on the home loan. Friends, the government gives the benefit of tax deduction on many types of investments under section 80C. The principle payment of the home loan is also one of these i.e. you will get a tax deduction for the amount you spend on the principle payment of the home loan.

Apart from this, you will also get tax deduction under this section in lieu of the expenditure on registration or Stam duty.

Note - Keep in mind that under section 80C, tax deduction is available only on the total amount of 1.5 lakhs. This 1.5 lakh includes PPF, EPC, ELSS, Insurance, NPS, NSC, SCSS.

Tax Deduction U/S 80C

  • Home Loan EMI principal payment
  • Registration and payment of stamp duty
  • Maximum claim amount - 1.5 lakh
  • Other Investments - PPF, EPF, ELSS, Insurance, NPS, NSC, SCSS.

If you are already availing tax deduction under this section, then the tax deduction for availing a home loan is reduced.

Equivalent tax deduction on home loan?

  1. You can take a tax deduction on the total interest payment up to Rs 3.50 lakh. The first tax deduction on interest payment is available under section u/s 24B.
  2. Under this section, if you are taking a home loan to build or buy a house, then you will get a tax deduction against the interest paid. But there is also a limit to the tax deduction. You can claim tax deduction on interest payments up to a maximum of Rs 2 lakh.
  3. Friends, there are also many conditions of tax deduction. This tax deduction will be available only when you have got possession of the house. If the property is under construction, then the right of the house to claim tax deduction will have to wait. Once you get the rights, you can also claim tax against the construction period.
  4. Another condition for claiming tax deduction on home loan interest is that the house should be built within 5 years. If it takes more time to build the house, then the limit for deduction of interest payment will not be 2 lakhs but only 30000.

2nd. Tax Deduction u/s 24B

  • Interest Payment Of home loan EMI
  • Maximum claim amount - 2 lakh
  • Only after the posession of house
  • Construction shoud be completed within 5 year

What is the way to claim tax deduction in under construction property?

Friends, the rule is that you can claim tax deduction only after you get the right to the house, but it can take 3-4 years to build a house and even during this time you pay the EMI and the interest paid in the beginning is high if In such a situation, you can claim additional tax deduction in lieu of the previous deduction after getting the entitlement.

You can claim additional tax deduction in equal parts over the next 5 years.

Suppose friends, your house is built in 4 years. 2017-2021. And during this time you have made a total interest payment of Rs 7.5 lakh, the decision to deduct tax on this interest payment can be taken only after the house is built. You divide this 7.5 lakh amount into 5 equal parts. And on the amount that comes, you will get a separate tax deduction every year. That is, you will get an additional tax deduction of Rs 1.5 lakh for a further 5 years.

Now we will talk about 3rd type of tax deduction.

This tax deduction is for those people who do not have their own house or are taking home loan for the first time. This deduction is given under U/S 80EEA. Recently, tax deduction has been included in 2019. You can test this deduction when your interest payment is more than Rs 2 lakh per annum. In such a situation, you can claim tax deduction under this section on extra interest payment.

  • Under this section, a deduction can be made on interest only up to a maximum of Rs 1.5.
  • Introduced Time Buyer in 2019
  • If the annual interest payment exceeds 2 lakhs
  • Tax deduction is available on additional interest payment.
  • Maximum claim amount - 1.5 lakh
  • There are some conditions for this tax deduction as well.

This is only for affordable housing. Not for expensive homes. For this the government has fixed the limit of home loan.

The home loan amount should not exceed Rs 45 lakhs for this deduction. Not only this, the government has also decided that the carpet area of ​​the house should not exceed 90 square meters. And if your house is in metro cities then the area of ​​your house should not be more than 60 square meters.

  • Only for affordable hounsing
  • Maximum Home loan amount - 45 Lakhs
  • Maximum carpet area - 90 SQ M
  • Maximum carpet area in metro cities - 60 SQ M

Apart from this, as I told you, this deduction is only for the first time home buyer. Or the home loan should be taken from a finance bank, or finance company only.

At present, the tax deduction under this section is for property purchased from 1st April 2019 to 31st March 2022.

Now I will tell you practically how much tax benefit we can avail on home loan?

home loan tax benefits
home loan tax benefits

Suppose, Rohit's earning year is Rs 16 lakh. And it comes in 30% income tax slab rate. Rohit has to take home. Or take a home loan of Rs 45 lakh so that he can get maximum tax deduction benefit. This loan of Rohit is for 20 years or interest rate is 7%, so Rohit's EMI is divided by Rs 34,888. In this way we have to pay Rs 4,18,661 in a year. Out of this entire payment, Rs 3,11,309 has to be paid for interest payment or Rs 1,07,053 for principal payment. Rohit claims tax under section 80C in lieu of the principal payment amount. Now only our interest saves Rohit out of this Rs 200000 claims tax deduction under section 248 and remaining Rs 1,11,609 Rohit claims tax deduction under section 80E. In this way Rohit gets a tax deduction against his entire EMI, due to which his taxable income will come down from Rs 16 lakh to Rs 11,81,339. Rohit's tax will also come down by Rs 1,30,662 due to work in taxable income.