Owning a home in these times and during such economic conditions is regarded as highly valuable. Your own home could be a prized possession as it could be used as a homely shelter as well as a beneficial investment for the future. This dream can come true for every Indian citizen with a housing loan. The Government of India is helping you avail maximum possible benefit in the form of tax reductions on your home loan. But as you would have guessed the entire process is quite detailed and could get complicated if not understood properly.
The government has launched many schemes supporting the Indian housing sector. These schemes have also brought down the issues of accessibility and affordability. This article will help you understand the multiple tax benefits on housing loans.
Home loan Tax Benefits
A home loan comes with both principal repayment and interest payment. This implies that both these categories are certified for tax deductions. These benefits will help your cash flow better and will help you reduce your tax payments, an amount which will definitely be significant.
Nature of Housing Loans Tax Reduction
The Government of India has made sure that Indian citizens get various tax benefits under the Income Tax Act 1961. Let’s see what are a few of the tax benefits that can be availed on home loans:
- Tax reduction of principal amount repayment: Under section 80C, this home loan deduction makes you entitled to avail of a reduction of about 1.5 lakh. This applies to both rental and self-occupied property. However, there are a few conditions:
- You cannot sell the property until and unless you have completed five years of possession to avail of this deduction
- The property should be completely constructed before this deduction is availed
- This includes the registration fee as well as stamp duty but can only be claimed once
- Tax reduction on the amount of interest paid: Under section 24B, this housing loan tax deduction can make you entitled to up to 2 lakh worth of interest amount from your gross annual income. This applies to a self-occupied house, or the one that’s being constructed, provided that the construction is over within 5 years of the loan availed. If in case you own two homes, the tax deduction still cannot be more than 2 lakhs.
- Tax reduction for joint owners of the property: Under section 80 C, if you have taken a joint home loan, you are entitled to apply for a deduction of about 2 lakhs on interest and 1.5 lakhs on principal repayment each. This basically means that the deductions will double as opposed to when availed by a single person. However, both these individuals are required to be the co-owners of the property and both should be paying the EMIs.
- Tax reduction on stamp duty and registration charges: Under sections 80 C and 24 B, other than the deductions on the principal repayment of the housing loan, you can also avail of stamp duty and registration charges up to 1.5 lakhs. However, this can be claimed only for the year the expenses are incurred.
- Tax reduction for first-time buyers of property: Under section 80 EEA, you are eligible to avail of an additional deduction of 1.5 lakhs. You are however supposed to not exceed the amount of 45 lakhs as stamp duty if you’re a first-time buyer. Also, the value of your house should be less than 50 lakhs. Even if you haven’t occupied the house yet, you can still claim this deduction. This deduction can only be availed between the 1st of April of one year and the 31st of March of the next year.
- Tax reductions on the second property bought: You can avail of all the home loan deductions available as mentioned above. Earlier, you had to self-occupy one of the properties and the other had to be lent out but now such a restriction is crossed off.
- Tax reduction on the amount of interest paid for an under-construction property: If the property you’ve purchased is under construction, you would be paying EMIs for the same. Hence there are two types of deductions on interest available for you. One is pre-construction interest and the other would be post-construction interest. As a part of pre-construction interest, the deduction is done in five equal instalments starting from the year the property was constructed or obtained. Therefore, the total deduction that’s available to you is 1/5th of the pre-construction interest + interest pertaining to the post-construction period.
Calculate Tax Benefits on Home Loan
There are multiple calculators online that will help you to calculate tax benefits on housing loans. There is some basic information that you will have to fill up and then you are set to go:
- Your annual income
- Interest paid on the home loan
- Principal repayment amount on home loan
- Starting date of your home loan
If you have taken a home loan and have all the way paved out for you, it still doesn’t harm you to get some extra and significant savings on tax. After all, all this is for you to keep your future as safe as possible and take your overall net worth to a higher level.
For something as intricate as availing tax benefits on loans, you need to keep a lot of things in mind and make sure that the sources from where you get information are correct and reliable. If not, misleading information could push you toward fraud and debt. However, Piramal Finance is the one source that you can always count on for dependable information. Get started today!