Home loans offer many benefits. They allow people to fulfil their dream of homeownership even if they do not have the funds needed to buy a home. They also allow people to go slightly beyond their budget and afford their dream homes. They also make it possible for people to build assets while also enjoying housing loan tax benefits and reduce their income tax liability every financial year.  

Every earning citizen of India whose income exceeds a certain pre-defined yearly income bracket must pay taxes. India follows a progressive tax system under which the tax to be paid by an individual is decided based on their total income. However, the Government of India offers certain loan tax benefits that help taxpayers reduce their yearly total income tax liability. Housing loan tax benefits are a part of these tax exemptions available to citizens of India. To encourage Indians to invest in homes, the Government of India offers home loan tax benefits on both the principal and interest parts of one’s home loan. 

How to Maximize Home Loan Benefits on the Principal Component of One’s Home Loan 

One can claim housing loan tax benefit on the principal component of their home loan up to a maximum of Rs.1.5 Lakh under Section 80C of the Income Tax Act. The thing to remember here is that Section 80C offers tax benefits through several other tax-saving avenues, such as ELSS, National Pension Scheme (NPS), Public Provident Fund (PPF), tax-saving FD, etc. The combined limit for tax benefits available for all these tax-saving instruments is Rs.1.5 Lakh. If you want to maximize home loan tax benefits under Section 80C, here’s what you need to know. 

1. Under Section 80C of the Income Tax Act, a home loan borrower can claim housing loan tax benefits on all the home loans they are repaying. However, the maximum amount that one can claim under Section 80C is Rs.1.5 Lakh, even if one is repaying more than a single home loan. 
2. If a homeowner sells their home within 5 years of buying it, the home loan tax benefits that they had claimed under Section 80C over the past five years get reversed and added to the taxpayer’s total income for the year in which they made the sale. The homebuyer has to then pay tax on this income. 
3. For joint home loans, borrowers can claim home loan tax benefits separately under Section 80C. When they do so, each co-borrower is able to claim housing loan tax benefits up to Rs.1.5 Lakh separately. Thus, a husband and wife who have availed of a home loan together can claim home loan tax benefits separately under Section 80C and maximize their housing loan tax benefits to Rs.3 Lakh in a given financial year.

How to Maximize Home Loan Benefits on the Interest Component of One’s Home Loan 

Section 24b of the Income Tax Act deals with home loan tax benefits on the interest component of one’s home loan. The maximum limit permissible under Section 24b is Rs.2 Lakhs. There are a few simple ways in which a home loan borrower can maximize home loan tax benefits under this section. 

1. To maximize home loan tax benefits on the interest component of one’s home loan, one of the first things you must know is that all loan borrowers who are also co-owners can claim tax benefits separately under Section 24b as well. This is one of the easiest ways to maximize tax benefits. 
2. Borrowers must also keep in mind that for under-construction properties, property buyers can claim home loan tax benefits on the interest paid during the pre-construction phase in five equal installments after the construction on the property is complete. However, the maximum pre-construction and post-construction interest that one can claim under Section 24b cannot exceed Rs.2 Lakh in any given financial year. 
3. For properties rented out by homeowners, there is no upper limit on how much tax benefit one can claim through their home loan. In this case, the property owner can claim the entire income from rental as home loan tax benefits. 

Apart from claiming home loan tax benefits under Section 80C and Section 24b, borrowers must also check if they are eligible to claim home loan tax benefits under Section 80EE and Section 80 EEA. The maximum limit mentioned under Section 80EE is Rs.50,000 and under 80EEA is Rs.1.5 Lakh. However, only first-time homebuyers who have invested in affordable housing can claim home loan tax benefits under these sections.