Tax benefits of owning a home is one of the most significant financial advantages of homeownership in India. Beyond the pride and stability that come with owning your own space, there are several monetary benefits, especially in the form of tax savings. For prospective and current homeowners, understanding these benefits can lead to better financial planning and substantial tax savings.
Here, we delve into the key aspects of the tax advantages of owning a home, breaking down the various deductions and exemptions available under Indian tax laws.
1. Deduction on Home Loan Interest (Section 24(b))
Tax benefits of owning a home prominently includes the deduction on home loan interest under Section 24(b) of the Income Tax Act. If you have taken a home loan to purchase or construct a house, you can claim:
- For Self-Occupied Property: A deduction of up to ₹2 Lakh annually on the interest paid.
- For Let-Out Property: There is no upper limit on the interest deduction; however, the total loss that can be adjusted against other income sources is capped at ₹2 Lakh annually.
This deduction makes home loans much more appealing, reducing the financial burden on the homeowner.
2. Deduction on Principal Repayment (Section 80C)
Another key component of the tax benefits of owning a home is the deduction under Section 80C. Homeowners can claim up to ₹1.5 Lakh annually for the principal repayment of their home loan. This limit also includes costs such as stamp duty and registration fees, which can be claimed in the year they are incurred.
This benefit not only reduces taxable income but also encourages investment in real estate. For many, these home tax deductions make owning a home far more accessible and affordable.
3. Additional Benefits for First-Time Homebuyers (Section 80EE and 80EEA)
If you’re a first-time homebuyer, the government offers even more incentives. Sections 80EE and 80EEA provide additional deductions:
- Section 80EE:Allows a deduction of up to ₹50,000 annually on home loan interest. To qualify, the loan amount should not exceed ₹35 lakh, and the property’s value should be up to ₹50 lakh.
- Section 80EEA:Extends additional benefits of up to ₹1.5 lakh annually for loans sanctioned between April 1, 2019, and March 31, 2025, for properties valued up to ₹45 Lakh. This extension reflects the government’s continued push for affordable housing.
These benefits are specifically designed to promote affordable housing and encourage individuals to transition from renting to owning.
4. Standard Deduction for Let-Out Properties
For homeowners who have rented out their property, there’s a standard deduction available to cover maintenance and repair costs. Under Section 24(a), 30% of the net annual value of the property can be deducted, regardless of the actual amount spent on repairs. This is an important aspect of the tax advantages of owning a home, particularly for those who invest in real estate for rental income.
5. Pre-Construction Interest Deduction
If you’ve taken a loan to construct a home, the interest paid during the pre-construction period can also be claimed as a deduction. This benefit allows homeowners to claim the pre-construction interest in five equal instalments starting from the year the construction is completed. However, the total deduction for self-occupied properties is subject to the overall limit of ₹2 Lakh annually.
6. Tax Implications on Selling a Property
When selling a home, understanding the tax implications is crucial. If you sell your property after holding it for more than two years, the profit qualifies as a Long-Term Capital Gain (LTCG). Indexation is optional for properties purchased on or before July 22, 2024 and for properties purchased after July 22, 2024 the LTCG tax rate is 12.5% without the benefit of indexation. Additionally, you can claim exemptions from LTCG tax by reinvesting the proceeds in another residential property or specified bonds under Sections 54 and 54EC.
7. Joint Home Loans for Maximum Tax Benefits
Taking a home loan jointly can significantly enhance the tax benefits of owning a home. Each co-borrower who is also a co-owner can claim deductions separately on both the principal repayment (under Section 80C) and interest (under Section 24(b)). This effectively doubles the benefits, allowing families to optimise their tax savings.
For example, if a husband and wife jointly take a home loan, each can claim up to ₹2 lakh on interest and ₹1.5 lakh on principal repayment, resulting in a combined deduction of up to ₹7 lakh annually.
8. Benefits Under Affordable Housing Schemes
The government’s push for affordable housing comes with numerous financial benefits. Under the Pradhan Mantri Awas Yojana (PMAY), first-time homebuyers in specific income categories can avail of interest subsidies on their home loans. This, coupled with other home tax deductions, makes affordable housing a lucrative option.
9. Understanding Deduction Under House Property Income
For homeowners with more than one property, the tax benefits extend to calculating the income from house property. Whether self-occupied or let-out, homeowners can leverage deductions to reduce their taxable income under this category. The deduction under house property income allows for both interest repayment and standard deductions, making it a strategic advantage for investors.
10. Tax Savings for NRIs
Non-Resident Indians (NRIs) also enjoy tax benefits of owning a home in India. NRIs can claim deductions under Sections 24(b) and 80C for home loans, similar to residents. This makes investing in Indian real estate an attractive option for those living abroad.
Why Homeownership is a Smart Financial Move
Beyond emotional satisfaction, owning a home provides long-term financial stability. By understanding and utilising the tax advantages of owning a home, individuals can significantly reduce their tax liability and make real estate a key part of their financial planning.
Tax benefits of owning a home are more than just a perk—they’re a game-changer for homeowners in India. From deductions on home loan interest and principal repayment to benefits for first-time buyers and let-out properties, the tax system is designed to support and encourage homeownership. By leveraging these benefits, you can save more, invest smarter, and achieve your dream of owning a home while keeping your finances in check.
If you’re planning to buy your dream home, make sure to consult a tax expert to fully understand how you can maximise your savings.
At Achyut Group, we’re here to help you find the perfect home that not only fulfills your aspirations but also aligns with your financial goals.
Let us guide you on your journey to smart and rewarding homeownership!
