In the 2019 budget, the Government of India expands the taxation limit from Rs. 2.5 Lakh to Rs. 5 Lakh. If your gross annual income is less than Rs. 5 Lakh, you can enjoy a tax-free financial year exceeding which you are required to pay tax.
There are various ways in which you can claim tax deductions to reduce the amount of payable tax at the end of each financial year.
To enjoy tax exemptions, you can avail of home loans that offer tax benefits under different sections. For example – you can avail home loan tax benefit under Section 80 EEA for the amount paid against stamp duty charges. However, to enjoy this tax benefit, the property value should not exceed Rs. 45 Lakh.
Other sections that allow tax saving on a home loan are –
Section 80C of the Income Tax Act allows you to enjoy tax exemptions of up to Rs. 1.5 Lakh for the amount paid against the principal amount calculated in your EMIs. To claim such deductions, the property should be in possession for more than 5 years and should not be sold before 5 years. If sold, the deduction amount claimed will be calculated along with your annual income and will be taxed accordingly.
Under Section 80EE of the Income Tax Act, homebuyers can avail tax deductions of up to Rs. 50,000 for first-time home loan applicants. For such tax exemptions, your loan amount should not be more than Rs. 35 Lakh and the value of the property should not exceed Rs. 50 Lakh. You can use a home loan tax benefit calculator to check the limit of tax exemptions you are eligible for.
Section 24(b) allows you to claim deductions for the amount paid towards the housing loan interest rate. The exemption limit is set at Rs. 2 Lakh, exceeding which, you are required to pay tax for the remaining amount.
Under this section, you can also avail home loan tax benefits for an under-construction property of up to Rs. 2 Lakh.
Additionally, you can avail a joint home loan to increase the limit of tax exemptions. For example, if Mr. B and Mr. C are co-applicants for a home loan and the total amount paid against the credit is Rs. 4.5 Lakh, both of the applicants can enjoy the tax benefits on a joint home loan of up to Rs. 2 Lakh each and the remaining amount (Rs. 50,000) will be taxable. In case of individual borrowers, Rs. 2 Lakh will be deducted, and the remaining amount (Rs. 2.5 Lakh) will be taxable.
Section 24(b) also covers top-up loans availed to fund the construction or renovation for your house. You are allowed claiming tax benefit of up to Rs. 30,000. To claim you are required to prove the end usage of the amount.
Furthermore, to avail home loan tax benefits, you are required to provide the EMI payment statement at the time of income tax filing at the end of each financial year. You can collect the required statement from your lender at the time of EMI payment.