How A Home Loan Can Give You Tax Benefits

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A home loan gives you two primary benefits. One, it allows you to buy into your dream home. Two, it helps in saving taxes.

When it comes to saving taxes, home loan repayments give you dual tax benefits. You get tax benefits on the principal as well as on the interest that is repaid. Let’s find out how –

  • Tax benefits on the principal amount

The principal amount of the home loan qualifies for tax deduction under Section 80C. The maximum limit of deduction that you can claim is Rs.1.5 lakhs. However, you should not sell the house within the next 5 years to be eligible to avail of this deduction.

  • Tax benefits on the interest amount

The home loan interest rates repaid during the tenure is also allowed as a tax exemption. Multiple income tax sections allow tax benefits on the interest that you pay. Have a look –

  • Section 24(b)

Home loan interest rates, up to Rs.2 lakhs, is allowed as a tax exemption if you occupy the home for which the loan has been availed. If, however, you have let out the house property on rent, there is no maximum limit. The entire amount of interest paid in a year would be allowed as an exemption from your taxable income.

  • Section 80 EE

If you are a first-time homebuyer, you can avail of an additional deduction on the home loan interest rates. This deduction is allowed under Section 80EE provided that the total value of the house property is up to Rs.50 lakhs and the loan amount is limited to Rs.35 lakhs. Moreover, the loan should be sanctioned between 1st April 2016 and 31st March 2017 to become eligible for availing of this deduction.

  • Section 80 EEA

This section also allows deduction on home loan interest rates for first-time homebuyers if they buy the house within 31st March 2022. To claim this deduction, you should not be eligible for a deduction under Section 80EE. Moreover, the stamp duty value of your house should not be more than Rs.45 lakhs.

  • Tax benefits on stamp duty and registration charges

Even the stamp duty and registration charges paid for the house property are tax-saving in nature. These expenses are allowed as a deduction up to a limit of Rs.1.5 lakhs under Section 80C. However, remember that the principal repaid and the stamp duty and registration charges are all allowed as deductions under the same section, i.e. Section 80C. The maximum aggregate deduction for these expenses would, thus, be limited to Rs.1.5 lakhs.

  • Tax benefits on under-construction house property

When your house is under construction, you usually pay a pre-construction interest. This interest cannot be claimed as a deduction or an exemption during the construction phase. However, once the construction is completed, you can claim a tax benefit on the aggregate interest paid during the construction period. The tax benefit would be allowed over five years in five equal instalments from the financial year in which the construction is completed. This interest, along with the actual interest paid for the loan, would be allowed as an exemption from your taxable income up to Rs.2 lakhs under Section 24(b).

Moreover, for joint home loans, all the co-applicants can claim these tax benefits independently.

So, capitalise on the tax benefits that home loans can provide. Check your home loan eligibility and avail of a loan to fund your dream home. With home loan interest rates falling in recent years and the aforementioned tax benefits, a home loan becomes affordable. You can also use the home loan EMI calculator to pre-determine the EMIs so that repayments become a breeze.

Be an informed borrower. Plan your taxes and buy a new home with a home loan.