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Home loan income tax benefits: What is the annual deduction you can take

When you make a payment, there are two parts to it. The first is the principal called the principal. The second is the interest on the amount of the home loan. Both these things are included in your EMI. You get tax benefit on principal as well as interest.

Income Tax Benefits on Home Loan: A major advantage of taking a home loan is the income tax deduction available on it. When you pay the loan through EMI, you get tax benefit. How do I get income tax benefit on home loan, is tax deduction available only on the interest part of the home loan, is interest also available as tax deduction? Let us try to know the answers to these questions.

income tax benefit

Income tax deduction is available on both interest and principal

First of all, it is important to know that when you make a home loan payment, there are two parts to it. The first is the principal called the principal. The second is the interest on the amount of the home loan. Both these things are included in your EMI. You get tax benefit on principal and interest.

Rules for Income Tax Deduction on Principal and Interest

The principal component of home loan EMI is eligible for tax deduction under section 80C of the Income Tax Act, 1961. A deduction of up to Rs 2 lakh can be taken in a financial year on the interest component. It is available under section 24B. The condition is that you have to use the house for your own living.

Additional Tax Deduction Rules

You can claim additional deduction on your existing home loan. This deduction is available under section 80EE. It was started through the Finance Act, 2016. You can get an additional deduction of Rs 50,000 on home loan interest in a financial year.

The condition is that you have taken a home loan to buy the first property. The home loan amount should be up to Rs 35 lakh. The third condition is that you have got your home loan approved in the financial year 2016-17. The fourth condition is that the value of the house should not exceed Rs 50 lakh. This deduction is in addition to the deduction of Rs 2 lakh available under section 24B.

In the Finance Act, 2019, the government had announced an additional deduction of up to Rs 1.5 lakh on interest to first-time home buyers under section 80EEA. The condition was that the house should be priced at a maximum of Rs 45 lakhs.

Since this benefit was given to first-time home buyers, a person cannot claim deduction of additional Rs 50,000 per annum on interest earned under section 80EE along with this benefit.

Thus, if the housing loan is taken between April 1, 2019 and March 31, 2020, the total deduction on interest can go up to Rs 3.5 lakh. In this, deduction of Rs 2 lakh is under section 24 and deduction of Rs 1.5 lakh is under new section 80EEA.

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