Maximize Tax Savings in 2023-24: Pro Tips for Lowering Taxes

Claim These Tax Deductions in 2023-24 If You Are Repaying a Home Loan

The Reserve Bank of India slashed the Repo Rate to 4% in May 2020. The apex bank of the country did so to give a boost to the sinking Indian economy. However, now that inflation has been rising continuously and prices of goods and services have reached new peaks, the Reserve Bank of India has once again been increasing the Repo Rate. The last Repo Rate hike happened in February 2023 when the RBI increased the Repo Rate by 25 basis points to 6.50% per annum. While the recent Repo Rate hikes have helped bring inflation under control, they have also made home loans expensive. Borrowers on floating interest rates are having to pay higher EMIs.

Fortunately, the housing loan tax benefits available to taxpayers in India can help cushion the effect of these Repo Rate and therefore, home loan interest rate hikes. Borrowers repaying a home loan can claim housing loan tax benefits on both the principal and interest component of their home loan and save considerably on tax payments each year. In this article, we dive deep and investigate the home loan deduction in income tax that home loan borrowers can claim in 2023-24.

Tax Exemption Under Section 80C 
Section 80C is one of the most favourite sections of taxpayers in India as it allows borrowers to claim an additional tax benefit of up to Rs.1.5 Lakh each year. Section 80C deals with several different tax-saving instruments, such as PPF, EPF, LIC premium, ULIPs, National Saving Certificates, Senior Citizen Saving Schemes, infrastructure bonds, etc.

Home loan borrowers can also claim home loan tax deductions on payments made towards the repayment of the principal component of their home loan, as well as stamp duty and registration charges paid at the time of buying the property.

Here are a few things that home loan borrowers must know about housing loan tax exemption available under Section 80C.

1. Only individuals and Hindu Undivided Families (HUFs) can claim housing loan tax exemption under Section 80C. Companies and corporate bodies are not eligible to claim home loan deduction in income tax under this section.
2. Home loan borrowers must know that it does not matter how many home loans they have and what percentage of their income is going towards the repayment of the principal component of these home loans, the maximum home loan deduction one can claim under this section of the Income Tax Act cannot exceed Rs.1.5 Lakh.
3. One can claim a home loan tax deduction on the principal component of their loan only if the construction of the property is complete. If the property is still being constructed, one cannot claim a tax deduction under 80C.
4. If a home buyer sells their property within five years of buying it, the income tax benefit they had claimed under Section 80C automatically gets reversed.
5. Co-borrowers who are also co-owners can claim housing loan tax deductions separately under Section 80C of the Income Tax Act. Couples who have co-borrowed a home loan can maximize tax savings by claiming tax benefits separately under this section.

Maximize Tax Benefits: Section 24(B)

Unlike Section 80C of the Income Tax Act which deals with several different tax-saving instruments, Section 24b of the Income Tax Act deals only with housing loan tax exemption available on the interest component of a home loan. The maximum limit permissible under Section 24b is Rs.2 Lakh.

Borrowers who wish to claim the maximum housing loan tax exemption available under Section 24b must meet the following criteria:

1.  The person claiming tax benefit must have availed of the home loan for the purchase and construction of their home. Those who have availed of a home loan for repair or reconstruction cannot claim a home loan tax deduction under Section 24b.
2. Taxpayers who want to claim home loan tax benefits under this section must have availed themselves of the home loan either on or after April 1, 1999.
3. Home loan borrowers who have invested in an under-construction property can claim the maximum housing loan exemption available under Section 24b only if the construction on the property gets complete within 5 years of availing of the loan. If the construction on the property does not get completed within 5 years, the maximum tax deduction that one can claim under Section 24b automatically comes down to Rs.30,000 a year.
4. Borrowers who have invested in under-construction properties must know that they can claim tax deductions on payments made towards the repayment of the interest component of their home loan in five equal installments after the construction on the property is complete.
5. However, pre-construction and post-construction interest cannot exceed Rs.2 Lakh in any given financial year.
6. Joint home loan borrowers can claim tax benefits separately under Section 24b of the Income Tax Act.

Exploring Section 80EE: Tax Advantages

Home loan borrowers can claim an additional home loan tax deduction on the interest component of their home loan up to a maximum of Rs.50,000 under Section 80EE. This tax deduction is over and above the home loan deduction in income tax available under Section 24b.

However, one can claim tax benefits under Section 80EE only if they meet the following criteria:

1. The value of the home purchased with the loan money must not exceed Rs.50 Lakh and the value of the loan availed of to buy this home must not exceed Rs.35 Lakh.
2. The taxpayer must have availed of their home loan between April 1, 2016, and March 31, 2017.
3. Only first-time homebuyers can claim tax benefits under this section of the Income Tax Act.
4. Only those home loan borrowers who have availed of a home loan from a bank or a housing finance company can claim a housing loan tax exemption under this section of the Income Tax Act.

Section 80EEA: Unlocking Tax Savings
Under Section 80EEA of the Income Tax Act, home loan borrowers can claim an additional tax benefit up to a maximum of Rs.2 Lakh on the interest component of their home loan provided they meet the following eligibility criteria:

1. The taxpayer must be a first-time homeowner and must have had no other property in their name at the time of sanctioning the home loan.
2. The borrower must have availed themselves of the home loan between April 1, 2019, and March 31, 2022.
3. The stamp value of property bought with the loan money must not be more than Rs.45 Lakh.
4. The taxpayer must have taken a loan from a bank or a housing finance company.
5. An individual can claim tax benefits under Section 80EEA only if they are ineligible to claim tax benefits under Section 80EE.
6. If the property is in a metropolitan city, its area must not exceed 60 square meters. If the property is in a non-metropolitan city, one can claim tax benefits under Section 80EEA only if the carpet area of the property does not exceed 90 square meters.

Final Words
In conclusion, home loan borrowers can save a considerable amount of money by way of housing loan tax exemptions available to them. Therefore, before filing their taxes each year, home loan borrowers must sit with a tax expert and understand the total home loan deduction they can claim in a given financial year as well as how they can maximize their tax savings.

Moneycontrol Journalists are not involved in creation of this article.