A home loan is a go-to financing choice for individuals willing to purchase their dream houses. While a home loan is a source of robust financial backup, it also helps individuals claim housing loan tax exemption. Under Income Tax Act, individuals availing of a home loan are eligible to enjoy tax rebates on the principal and interest repayment.
However, to make the most of the tax benefits and save a significant amount on EMI and interest repayment, borrowers must know the ins and outs of the home loan tax benefits.
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Save tax with a home loan – An overview
Borrowers can reap home loan tax benefits under the following Sections of the Income Tax Act.
Under Section 80C, borrowers can enjoy a tax rebate of up to Rs.1.5 lakh on the principal portion. However, borrowers must not sell the property within five years of possession.
Moreover, under this section, borrowers can claim tax exemptions on stamp duty and registration charges within the same limit of Rs.1.5 lakh. Tax deductions on stamp duty and registration can be claimed only in the year borrowers have incurred these expenses.
Section 24 (B)
Section 24 (B) of the Income Tax Act entitles borrowers to claim a tax deduction of up to Rs.2 lakh on the interest component of the borrowing. However, such home loan tax exemption can be claimed only if borrowers utilise the loan principal for the construction or the purchase of a house.
Moreover, these exemptions apply to properties whose construction must have been completed within five years. If construction takes more than five years to complete, the deduction drops to Rs.30,000. The tax benefit will reverse if borrowers are not adhering to the given conditions.
This is an additional tax benefit meant for first-time homebuyers. Under Section 80EE, borrowers can claim deductions of Rs.50000 on the interest component. Borrowers need to ensure that the loan amount they have opted for is less than Rs.35 lakh and that the worth of the property is below Rs.50 lakh. This deduction was implemented to encourage people to avail of home loans.
Joint home loan
Furthermore, tax benefits are applicable even on a joint home loan. Both the holders can claim tax exemption on a home loan, entitling each of them to get a deduction of up to Rs.2 lakh on the home loan interest and Rs.1.5 lakh on the principal amount. However, such benefits can be availed only if both the applicants possess the co-ownership.
For further convenience, borrowers can use the home loan tax calculator India to get clarity on the amount they can save after obtaining a home loan.
To compute overall tax liability, borrowers can opt for an income tax calculator. It will assist borrowers in assessing the tax benefits of different credit options available, helping borrowers make an informed decision. This computational tool considers an individual’s income, age, several deductions and eligible exemptions under different Sections of Income, helping them estimate the total tax they are liable to pay on their income under both the new and old tax regime.
Besides enjoying tax exemptions, there are several benefits of taking a joint home loan. It enhances the borrower’s chance to get quick loan approval for a high-value loan amount. Moreover, the EMI burden reduces to a great extent as repayment responsibility falls on both applicants. Before availing of a home loan, borrowers must know the tax savings and other advantages of home loan today.
Apart from tax exemptions, home loan borrowers can enjoy several notable benefits of the credit option. A home loan allows a substantial loan amount to borrowers at an affordable interest rate. Moreover, it extends a flexible repayment period to borrowers, helping them repay the loan amount on time and manage other financial obligations. Borrowers can also avail home loan balance transfer facilities to get better loan terms.
Besides reaping home loan tax benefits, borrowers can also avail of pre-approved offers extended by leading financial institutions on a wide range of financial products like home loans, loans against property etc. These offers expedite the home loan application and reduce the lengthy documentation process. Intending borrowers can check their pre-approved offers by submitting their names and contact details.
To sum up, housing loan tax exemptions intend to make borrowing affordable and easily accessible, turning housing loans into an even more feasible financial choice. Hence, a deep understanding of the intricacies of tax benefits will help borrowers make the most out of the home loan.