Tax rebates on home and education loans

Taxpayers who have been repaying their home loans and education loans through FY2017-18 can avail tax rebates under various sections of the Income Tax Act. Let us look at the details of the benefits available for such taxpayers.

Home loan

If you are repaying a home loan, both principal and interest amounts are eligible for tax rebate. The principal component of the EMI can be claimed for tax deduction under section 80C, subject to the maximum limit of Rs 1.50 lakh per year. The interest component of the EMI is also eligible for tax rebate under Section 24, subject to the maximum limit of Rs 2 lakh per annum. Therefore, the maximum amount of rebate available on home loan EMI is Rs 3.50 lakh per year, but subject to the sub-limits stipulated for principal and interest components of the EMIs as stated above. So, if the interest component in the EMI of a home loan borrower is Rs 3 lakh and the principal component is Rs 1 lakh for a particular year, he can avail maximum rebate of Rs 3 lakh (Interest amount of Rs 2 lakh+principal amount of Rs 1 lakh) for that year.

On the other hand, if the principal component is Rs 3 lakh and interest component is Rs 1 lakh, the maximum rebate available would be Rs 2.50 lakh (Rs 1.50 lakh interest+Rs 1 lakh principal) for that year. The principal component is lower and interest component is higher during the initial years of EMIs, while the principal component is higher and the interest component is lower in the EMIs during the final years of loan repayment. First time home buyers can claim additional deduction up to a maximum of Rs 50,000 under Section 80EE, if the loan amount does not exceed Rs 35 lakh and the cost of property does not exceed Rs 50 lakh.

Education loan

The interest paid on education loan qualifies for tax deduction under Section 80E of the IT Act. Such deduction can be claimed for a maximum of 8 years. There is no limit on the amount of deduction that can be claimed by the taxpayer, but the loan has to be taken from an approved financial institution only.