Can Home Loan Tax Benefit Be Claimed for Self-occupied and Let-out Properties?

Many people do not need a home loan, but they still apply for a loan. Why do people apply for a home loan even when they have the finances to purchase a brand-new home? The answer is that people sometimes prefer a home loan to save on taxes. With a housing loan, an individual can avail of tax benefits legally. 

As per the income tax act of India, home loan tax benefits are substantial. Before applying for a home loan, applicants should understand tax benefits on self-occupied and let-out properties. Read on to obtain a comprehensive understanding of housing loan tax benefits.

Understanding the concept of self-occupied and let-out properties

Before understanding the income tax benefits on a home loan, let us have a basic understanding of self-occupied and let-out properties. In legal terms, a self-occupied property is used by the loan applicant only. The family or sometimes relatives can stay in the self-occupied property. A let-out property is used for rental purposes and to earn rental income. It does not mean the loan applicant cannot step inside a let-out property. Since the individual owns the let-out property, they have all ownership rights. However, they must follow the rental agreement rules signed with the tenants. The tax authorities can consider the property a let-out if the applicant has exceeded the number of allowed self-occupied properties on home loans.

Understanding the tax benefits on self-occupied properties

Tax benefits on housing loans are clearly stated in the Income Tax Act of India. When someone applies for a first home loan, it is assumed to be for a self-occupied property. After paying a few instalments, the applicant can apply for a second home loan concurrently. The second home loan offered by the provider is also assumed to be for a self-occupied property. If the applicant tries to apply for a home loan for the third time, it will be deemed a let-out property. The rules in the Income Tax Act for tax benefits on the first two housing loans are as follows:

• As per Section 80C of the act, one can claim a tax benefit of up to INR 1.5 lakhs on the principal repayment of the housing loan. A housing loan EMI has two components, the principal amount and the interest charge. It’s important to note that Section 80C defines tax benefits on the principal part of the home loan EMIs. This section also states that people can claim tax benefits for stamp duty and property registration charges.

• As discussed above, every home loan EMI includes some fraction of the interest amount. The interest charges are typically more in the initial period of the loan tenure. According to Section 24(B) of the act, people can claim tax benefits of up to INR 2 lakhs on interest payments for a housing loan.

• People buying a house for the first time with a housing loan can get additional benefits. As per Section 80EEA of the act, someone purchasing a home for the first time can get tax benefits of up to INR 1.5 lakhs on the interest component of their housing loan.

It’s crucial to note that one cannot exceed the maximum limit of tax benefits mentioned in the Income Tax Act. Also, the maximum tax benefit is the combined benefit on the first and second housing loans. Many people take a housing loan for construction purposes. In such a case, the individual is eligible for tax exemption.

Tax benefits for housing loan on a let-out property

After two housing loans, the third loan will be provided on a let-out property. Sometimes, an individual might get a second housing loan for a let-out property. Tax benefits are available for a housing loan on a let-out/rented property in India. Section 24(A) of the Income Tax Act states that one can claim 30% of the property’s annual value as a tax benefit. The rental property owner also has to submit municipal taxes timely. 

Tax benefits are also available for municipal taxes submitted in a fiscal year. For a let-out property, tax deduction on the interest component of the loan can be claimed without any upper limit. One should ensure that the housing loan tax benefits are claimed timely. For more clarity on home loan tax benefits, it’s recommended to speak with a bank representative. Claim tax benefits on housing loans for self-occupied and rental properties right away!