Buying your first home is a big financial achievement and the Indian government recognizes this by offering tax advantages to encourage home ownership. These are offered under various sections of the Income Tax Act and can reduce your tax liability by a big margin. For first-time home buyers, it is important to know what is eligible, how much can be claimed, and the conditions attached to make the most of these deductions.
This blog summarizes the tax benefits that are accessible to first-time homeowners and how to claim them properly when preparing your income tax return.
Introduction
For most people, home ownership is a dream that signifies stability, pride, and future security. But with the increasing prices of real estate properties, such an initial purchase often requires borrowing a massive home loan. Fortunately, the Income Tax Act comes to the rescue of first-time homebuyers in the form of a series of deductions on the interest and the principal part of the loan.
These perks are not merely inducements; they are intended to make home ownership more attainable, especially for the middle class. But it pays to read the fine print. Every section has eligibility requirements, limits on the amount of deduction, and conditions based on property value and loan type. For people who are about to purchase their first home or have just done so, learning to navigate these tax provisions is key to maximizing savings.
Who is Deemed a First-Time Home Buyer?
A first-home buyer, from a tax point of view, is generally one who-
- Never owned a residential house property in India earlier
- Is buying or building his first home
- Might be availing of a home loan for the same
The term is informal not only because it is applied to a different category of housing but also because specific tax reliefs, such as those under Section 80EE and Section 80EEA, mandate that the person has no previous ownership of any residential house on the day of loan approval. Even co-ownership in inherited property makes one ineligible to claim first-time buyer relief under these sections.
Key Tax Advantages for First-Time Home Buyers
1. Deduction Under Section 80C (Principal Repayment)
The principal amount repaid on your home loan can be deducted under Section 80C, with a maximum limit of Rs 1.5 lakh annually. The deduction comes in addition to the overall 80C limit that covers LIC premium payments, PPF deposits, tuition fees, etc.
How to avail this benefit-
- The home loan should be from a reputable financial institution or bank
- The property cannot be sold within 5 years of possession, or the deduction will be withdrawn
While not limited to first-time buyers, this section is an important one in cutting down taxable income in the initial years of homeownership.
2. Deduction Under Section 24(b) (Interest on Home Loan)
Under Section 24(b), you can deduct as much as Rs 2 lakh annually as interest paid on a home loan for self-occupied residential property.
Where the property is rented or deemed to be let out, there’s no actual limit to the deduction of interest. Yet, overall loss under the “Income from House Property” head available for set-off against other income is limited to Rs 2 lakh with the balance being brought forward.
This can be availed only after the completion of construction or taking possession, not during construction. Interest paid during construction is, however, allowed in five equal installments after possession.
3. Deduction Under Section 80EE
This section offers an extra deduction of Rs 50,000 annually on home loan interest, only for first-time buyers of homes.
The eligibility conditions are-
- The loan should have been approved between 1st April 2016 and 31st March 2017
- The loan value must not be more than Rs 35 lakh
- The value of the property should not be more than Rs 50 lakh
- The buyer should not have any other residential house at the time of approval of the loan
Although this section is for a previous time frame, some taxpayers are still under it and can still claim it until the end of the loan.
4. Section 80EEA Deduction
As announced in Budget 2019, Section 80EEA provides an extra Rs 1.5 lakh deduction of home loan interest for first-time homebuyers over and above Section 24(b).
Conditions of Eligibility are-
- Sanction of the loans should be between 1st April 2019 and 31st March 2022
- The stamp duty value of that house property should be below Rs 45 lakh
- Buyer must not possess any residential house at the time of sanction of the loan
- 80EEA deduction can be claimed only if 80EE is not being claimed
This benefit formed part of the government’s “Housing for All” push, and though the window closed, most taxpayers who purchased property during this window can continue claiming this benefit until the loan has been repaid, year on year.
Common Mistakes First-Time Buyers Should Avoid
One of the most frequent mistakes is believing that simply owning a house makes you eligible for all deductions. Sections 80EE and 80EEA are date-based and value-based, and failing to meet one will invalidate your claim.
Another blunder is claiming deductions prior to taking possession. Interest on the construction period cannot be claimed until the house is habitable.
Not maintaining proper documentation or not allocating deductions properly between co-borrowers are some of the other problems that may cause scrutiny during evaluation.
Conclusion
Purchasing a house is a great personal milestone, as well as a great financial decision, if you reap all the tax savings possible. Having both interest and principal repayments deducted from tax, first-home buyers are potentially saving a number of lakhs in years to come on the actual price of the loan.
The trick is to be aware of the specific provisions in Sections 24(b), 80C, 80EE, and 80EEA, being eligible, and filing your income tax returns accurately. With the government still encouraging affordable housing, these benefits will probably continue to be a great incentive for new homebuyers.
If you’re about to purchase your first home or have just done so, now is the time to get your papers in order and make sure you’re claiming every deduction you’re eligible for.
Related Services
References
The Income Tax Rules, 1962
The Income Tax Act of 1961 (Act No. 43 of 1961)
