When you buy your own home, it is truly a dream come true for all of us. And that is why, the Government of India has always come out with techniques to encourage the citizens to Invest in Residential Properties. How? Well, a home loan is eligible for tax deduction under Section 80C. When you Buy a Residential Property on a home loan, you get multiple tax benefits that actually reduce your tax outgo.
Many schemes like Pradhan Mantri Awaas Yojana (PMAY), NTR Urban Housing Scheme, the Maharashtra Housing and Area Development Authority (MHADA) scheme, etc, are flashing green light on the Indian Residential Housing Sector to bring down the significant problems of affordability and accessibility.
In this article, we will cover all the home loan tax benefits.
TAX BENEFITS ON HOME LOAN
- Tax benefits under Section 24: Payment of Interest –
Interest paid on a home loan is deductible from taxes under Section 24(b) of the Income Tax Act. For a self-occupied house, the maximum tax deduction of Rs. 2 lakh can be claimed from your gross income annually. In the event that you own two homes, your combined tax deduction for home loans cannot exceed Rs. 2 lakhs in a fiscal year. If the property is rented out, there is no upper limit on how much interest you can claim. If you have let out your property on rent, the entire amount of interest paid on your home loan for purchase, construction, repair, renewal or reconstruction can be claimed as tax deduction.
- Tax Benefits under Section 80C : Repayment of Principal Amount –
You are eligible to deduct a maximum claim of Rs 1,50,000 of principal payments from taxable income each year. It includes registration fees and stamp duty paid. It can only be claimed once. In order to claim, the property should be fully constructed. You have no right on this deduction if you sell your home within 5 years of your possession. Any claimed deduction will be reversed in the year of sale if you sell your home within five years of taking possession. Additionally, this sum will be included in your income for the year in which the house is sold.
- Tax deduction on interest paid for under-construction property :
If you have purchased a property and it is in the under-construction period and you have started paying the EMIs, you can claim interest on your housing loan as deduction after the construction gets completed. Income Tax Act, 1961 allows a deduction for both the pre-construction period interest and post-construction period interest. Interest that belongs to the pre-construction period is allowed as deduction in five equal annual installments, starting from the year in which the construction is completed.
- Home loan tax benefits under Section 80EE: Additional Deduction –
Section 80EE allows income tax benefit on interest on home loans to first time buyers. These are the in following events to look out for:
- This deduction will be given only if the cost of the property acquired is not more than Rs. 50 Lakhs and the amount of the loan taken is upto Rs. 35 Lakhs.
- The loan should be sanctioned between 1st April 2016 and 31st March 2017.
- The advantage of this deduction would be possible till the time the payment of the loan continues.
- This deduction would be accessible from the financial year 2016-17 and onwards.
- You should not be owning a housing property anywhere in India on the date of loan sanction.
- Deduction for stamp duty and registration charges :
A deduction for stamp duty and registration fees can also be claimed under Section 80C. You can claim only up to a total of Rs 1.5 lakh. However, it can only be deducted in the year these costs are applied.
While a home loan has a cost, when used wisely, can significantly lessen your financial load and enable you to maximize your tax savings. Other than home loans, there are many other strategies to reduce your tax liability while making savings. This will eventually raise your overall net worth.