Buying a house is considered a big milestone in people’s lives. And when people want to turn their dream into reality, they look for options to finance their dream. The best option that comes to their mind is going for a housing loan. Additionally, it helps you save on some taxes so you can reduce your financial burden. Our government offers various tax benefit schemes that you can avail to save some money. It might not seem very significant in the short run, but you can actually save a lot in the long run. If you have already decided to opt for a house loan, then it’s of great importance that you do your full research and get to know of all the benefits beforehand.
Home loan is made of two components, principal amount and interest. And both of these components are qualified for tax deductions. The principal repayment of the loan is deductible under Section 80C, while the interest amount is deductible under Section 24(b) of the 1961 Income Tax Act.
Below is the list that covers all the home loan tax benefit that one can avail of.
Tax benefits for the first home buyers – Self-occupied
As for the principal amount of your loan, you are eligible for a deduction of up to Rs. 1.5 lakhs under section 80C. The amount can go up to Rs. 2 lakhs for senior citizens. And when it comes to the interest amount, the Income Tax Act allows you to claim a maximum of Rs. 2 lakhs; this only applies when the construction gets completed within 5 years from the end of the financial year in which the loan was taken. For senior citizens taking the home loan, it remains capped at Rs. 3 lakhs.
Tax benefits for the first home buyers – Rented/Vacant (Deemed to be let out property)
In this case for principal amount, under section 80C, one can claim a maximum amount of Rs. 1.5 lakhs as an investment for a tax deduction. However, one thing to note here is that this can only be claimed when the property owner is living in a different city.
For Interest amount: You can claim tax benefits on the lowest of the two: 1) A claim of a maximum of Rs. 2 lakhs or 2) actual interest paid for all properties owned by a taxpayer.
Tax benefits for second home buyers
If you are a second home buyer, you won’t get any tax benefit on the principal amount.
When it comes to interest paid, the tax exemption can be availed at the lowest of the two – 1) A claim of a maximum of Rs. 2 lakhs or 2) actual interest paid for all properties owned by a taxpayer.
In case you own two homes, your total tax deduction should be less than Rs. 2 lakhs, not more.
Tax benefits for the ones who have taken loans for under construction houses
Just like the second home, you do not get any tax benefit on the principal amount here.
When it comes to interest paid, following the completion or handover of the property, the interest paid can be claimed in equal parts in 5 financial years within a maximum annual limit of Rs. 2 lakhs. To make things easier, you can use the income tax calculator to calculate how much tax exemption you are eligible for.
Deduction for a joint home loan
If you take a joint home loan, you can claim a deduction of Rs 2 lakh on interest paid, and up to Rs 1.5 lakh for principal repayments in your tax returns.
Please note that this deduction can only be claimed by you if you have taken a loan with someone. So, if you can, you should take a joint loan with your family; this will help you with a good tax benefit.
Deduction for stamp duty and registration charges
When you take a house loan, you are required to pay for stamp duty and registration fees as well. Under section 80C, you can claim a deduction on these charges as well. Just that you can claim the tax benefit only in the year these charges were paid by you.
How to calculate tax benefits on Home Loans easily?
When there are so many sections and so many rules, it might get difficult for you to understand the actual amount that can be claimed for tax benefits. So, the simplest way to do it is by using an online calculator. You are required to enter the information like loan amount, tenure, interest rate, loan start date, gross annual income, and existing deduction under 80C/D.
We all know that the cost of a house loan is significant, but there are ways to reduce your financial burden and save money on taxes by using it wisely. All you have to do is do your research properly.