Home Loan tax benefits can be an excellent way to reduce the cost of owning a home. By taking advantage of these benefits, borrowers can save money on their taxes, which can help make their Home Loans more affordable. However, claiming these benefits can be complex and confusing for many. That’s why it’s important to understand the steps to take advantage of the tax benefits available on your Home Loan.
The Home Loan EMI, or Equated Monthly Installment, is the amount you need to pay each month to repay your Home Loan. It consists of both the principal and the interest. By taking advantage of the tax benefits available on your Home Loan, you can simultaneously reduce your overall EMI and save money on taxes you pay. This article will outline seven steps you need to follow to take advantage of these tax benefits and make your Home Loan EMI more affordable.
The Best Ways to Get Home Loan Tax Benefits
Here are the seven ways to take advantage of tax benefits on Home Loans:
- Repayment of the Principal Amount for Home Loan Tax Benefits under Section 80C
You can deduct a maximum of Rs 1,50,000 in principal payments yearly from your taxable income. Both personally inhabited homes and rented properties fall under this. A few things to remember regarding this deduction are;
- Registration fees and paid stamp duty are also included. However, you can only make one claim
- To claim, the property must be entirely built
- If you sell your house within five years of ownership, you cannot claim this deduction
- Selling your house within five years of purchasing will undo any claimed deductions in the sale year. This amount will also be counted towards your income for the year the residence is sold
- Tax Benefits for Home Loans under Section 24 – Interest Payment
Tax deductions are also available for Home Loan interests.
As per the Income Tax Act of 1961, Section 24(b) allows you to claim a deduction for the interest you paid on your mortgage. The maximum annual tax deduction of Rs 2 lakh for a self-occupied residence is allowable against your gross income.
If you own two homes, you are only allowed a tax deduction for Home Loans of Rs 2 lakh every fiscal year.
You can deduct no maximum amount of interest if the property is rented out.
- Tax Deduction For Interest Paid On Property Pursuant To Construction
You may deduct the interest on your Home Loan after the construction is finished. If you have purchased a property and are paying the Home Loan EMI during the construction period and it is still under construction:
- Interest from pre and post-construction periods may be deducted under the Income Tax Act of 1961
- Five EMIs, starting in the year the building is finished, are permitted as a deduction for interest related to the pere-construction phase
- As a result, the taxpayer can claim the total interest deduction under Section 24(b) equal to 1/5th of the interest related to the pare-construction period (if any) plus the interest related to the post-construction period (if any)
- Section 80EE Home Loan Tax Benefits: Additional Deduction
First-time purchasers are eligible for an income tax benefit on mortgage interest under Section 80EE in the following circumstances:
- This deduction will only be granted if the cost of the property purchased is under Rs 50 lakh and the loan amount is under Rs. 35 lakh
- The benefit of this deduction will be available as long as the loan is still being paid
- This deduction would be available starting from the 2016–17 fiscal year
- Interest on Home Loans: Home Loan Tax Benefits under Section 80 EEA (First Time Buyers)
You may additionally deduct up to an additional Rs 1.5 lakh for the interest on your mortgage. The following conditions must be satisfied to be eligible for the Section 80 EEA Home Loan tax benefit:
- If you wish to purchase a residential home, you must obtain a housing loan from a financial institution or housing financing firm
- The house property’s stamp duty value should not be more than Rs 45 lakh
- Individual taxpayers shouldn’t be able to use the current Section 80EE to deduct expenses
- The taxpayer ought to be a brand-new homeowner. The taxpayer should not be the owner of any other residential property at the time of loan sanction
- If you and your spouse jointly own a piece of property and both of you make loan payments, you can both claim the deduction
- Residents and Non-residents alike may benefit under Section 80C
The clause does not state whether the residential property must be used for self-occupation to qualify for the deduction. This indicates that a deduction may be claimed under this clause even without holding possession.
- Joint Home Loans on interest and principal payments are eligible for Home Loan tax benefits under Sections 24 and 80C
- When a Home Loan is obtained jointly, each borrower is qualified to deduct their principal and interest payments to Rs 1.5 lakh under Section 80C and up to Rs 2 lakh under Section 24(b)
- When compared to a single borrower’s house loan, this doubles the number of deductions available
- However, both applicants must be co-homeowners and have made all of their Home Loan EMI payments
- Tax Advantages for Second Homes
The following tax advantages are available if you borrow money to buy a second home:
- According to current laws, there are tax advantages for interest due. The Income Tax Act permits a deduction for the entire amount of interest paid
- As part of the 2019 Union Budget, the government increased its incentives for real estate purchases. A second home was formerly considered to be rented out, and its notional rent was computed and taxed as income because only one property could be recognized as self-occupied. But now that the change has been made, even a second property might be considered self-occupied
Final Words:
A Home Loan does have a cost, but if you utilize it intelligently, you may minimize your debt and maximize your tax deductions. In addition to House Loans, numerous other ways to lower your tax obligations and save money can eventually increase your overall net worth.