7 Smart income tax benefits to take advantage of with your home loanOctober 3, 2019 . Financial Planning . 10 min read
The word taxes has always been associated with what benefits you can gain from them. So when it comes to buying your dream home, the Indian government has especially with the last budget is encouraging citizens to invest more into buying their first home.
Did you know that your home loan is eligible for tax deduction under section 80C ? So while you may be paying interest on the money you’ve borrowed from your bank or NBFC, you also have the option of multiple tax benefits to reduce your outgo on your taxes. Schemes like Pradhan Mantri Jan Dhan Yojana are helping develop the housing sector in India. These schemes strive to reduce the problems of affordability and accessibility. Let’s map out the different sections that you can apply for a deductions.
These are one of the tax benefits that one can avail on their home loan. These yearly deductions are related to interest paid on a property loan. If the property under question self-occupied, an individual is allowed to claim a maximum deduction of ₹2 lakh under Section 24. This ₹2 lakh deduction is applicable only when the property is completed for construction within 5 years from the Financial year in which it was started.
If the construction on the property is not finished within the mentioned 5 years, your claim is reduced to only ₹30,000. So, if your loan was taken on 30th April 2016, the construction of the property should be completed by 31st March 2022. If the property is being let out on rent, the buyer has the ability to claim a limitless amount that was paid to the bank as interest.
An individual can claim the amount spent as interest if the property is given out on rent. However, this doesn’t take into consideration a completed project or an under-construction one. But, the overall loss that is claimed is restricted to ₹2 lakh under the head of House property. This Deduction can be claimed from the year in which the construction of the house is completed.
Interest paid towards home loans during pre – construction period
If you have invested in an under-construction property and have not resided in the home as yet, you continue to pay the EMIs. Your ability to claim deductions start only when the property is fully constructed or you invest in a recently constructed home.
You can still enjoy deductions before the completion of your home. Pre-construction interest helps out in situations like these. The income tax law states that interest paid during the pre-construction time can be claimed as a tax deduction in five equal instalments. This is from the year in which the construction of the property is completed. The maximum amount, however, remains capped at ₹2 lakh.
Repayment on principal
In tax benefits under Section 80C, the principal portion paid as the EMIs for the financial year is deductible. The maximum amount that one can claim goes up to ₹1.5 lakh. One setback with this structure is that the house should not be sold within 5 years of its possession, otherwise, the amount that was deducted is added back to your income in the financial year that the house was sold.
Repayment on stamp duty and registration charges
Under section 80C, a deduction on stamp duty and registration charges can be claimed within a limit of ₹1.5 lakhs. But can be claimed in the year that the expenses happened.
Under section 80EE
Under Section 80EE there are additional deductions that are allowed for home buyers up to a maximum of ₹50,000. To claim this deduction, the amount of loan should be ₹35 lakhs or less and the value of the property should not exceed ₹50 lakhs. The loan should be sanctioned between the period of 1st April 2016 to 31st March 2017. The individual does not own any other house at the time the loan is granted. Section 80EE was reintroduced effectively from the Financial Year 2016-17 and the earlier deduction was allowed under Sec 80EE and was made available for 2 years, namely the financial year 2013-14 and the financial year 2014-15.
Under section 80EEA
The budget 2019, further introduced an additional deduction. Under Section 80EEA, home buyers are allowed a claim upto a maximum of ₹1,50,000. The stamp value of the property should not exceed ₹45 lakhs. The loan should be sanctioned between 1 April 2019 to 31 March 2020. The individual should not own any other house at the time of sanction of the loan. The individual must also not be eligible to claim deductions under section 80EE.
Joint home loan
A home loan that is taken jointly, the co-holder of the loan can claim a deduction on interest up to ₹2 lakh each. Principal repayment in this case under section 80C can be claimed up to ₹1.5 lakh each individually. They must also be co-owners of the home that the loan is taken on. So a loan taken jointly by a family can help claim a bigger tax benefit. Let’s say you are a co-borrower as well as the co-owner of the house, you can each claim up to the maximum deductible amount under this section.
Understanding these tax benefits will make the home buying a much easier decision. So if you are ready to buy a home, we’ve got your down payment covered.
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