Buying a house is a dream come true for many of us. You get to enjoy the security and comfort of your own house. Moreover, you don’t have to worry about your landlord’s unnecessary restrictions, complaints, and rent negotiations.
However, purchasing a house can be quite stressful due to the rising prices of the property. In such cases, you can turn to banks to get a home loan. A home loan not only helps to fulfill your dream of owning a house but also comes with several tax benefits which can help you save money.
You are allowed to claim home loan interest rate deduction both on interest paid and the principal amount of the loan under Section 24 and Section 80C respectively of the Income Tax Act.
Here are the five primary tax benefits on a home loan:
1. Interest paid on the borrowed amount:
As per section 24 of the Income Tax Act, you can claim a deduction of up to Rs 2 lakh per annum on the interest paid on your home loan. If the house is not constructed within 3 years from the end of the financial year that the loan was taken.
You will be allowed to claim only Rs.30,000 as a deduction. If you have taken the loan for repair, reconstruction or renewal of your house, you won’t get any tax deductions on the interest paid.
2. Pre-construction period interest payment:
If the interest for the loan taken to purchase or construct the house has been paid before the house has been completed, then it would be treated as a tax deduction in 5 equal installments for the next 5 financial years.
These installments commence from the construction of the property or when you acquire the property.
3. Principal repayment:
Under section 80C of the Income Tax Act, you can avail tax benefits on the annual principal repaid amount on your home loan. The maximum deduction available is Rs. 1.5 lakh per annum.
For senior citizens, the tax deduction allowed is Rs. 2 lakh. Please note that you are eligible for this deduction only if you do not sell the property within 5 years of possession.
In case, you sell the property, all deductions that you may have claimed earlier are added to your income and will be taxed at the prevailing tax rates.
4. Stamp duty and registration charges:
You may claim tax deduction towards the stamp duty and registration charges under section 80C of the Income Tax Act. However, such deductions must adhere to the overall limit of Rs. 1.5 lakh per annum as provisioned under this section.
It is important to bear in mind that deduction for stamp duty and registration charges is available only in the financial year when you actually incur these expenses.
5. Joint home loan benefits:
If you apply for a home loan jointly with your spouse or any other family member, each of you can claim a deduction of up to Rs 1.5 lakh on principal payment and Rs 2 lakh for interest payment.
However, the total deduction claimed cannot exceed the actual interest paid and the principal amount repaid during the year. However, please remember that a co-applicant who is not a co-owner is not allowed to claim these tax deductions.
Similarly, a co-owner who is not a co-applicant on your loan is not eligible for these tax deductions.
Additional Reading:- SOME WAYS TO GAIN TAX BENEFITS FROM HOME LOAN
Housing loans are a boon to individuals who want to acquire their own homes. However, it is recommended you determine your monthly expense using a home loan EMI Calculator to ensure you do not take on a liability that may result in financial distress.