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Here's How You Can Save Rs. 5 Lakhs in Taxes Annually with a Home Loan

By Chanel Rick - Feb 18,2022
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home loan benefits

When you’re on a budget, paying rent every month is a hefty expense. It can’t be helped with, especially if you’re living in expensive metros like Delhi and Mumbai. You could easily shell out thousands of rupees every month for an apartment that may not even live up to your expectations. Perhaps it’s too cramped, not ventilated or just not the living situation you’re looking for. 

Well, it’s time to take the proactive approach this 2022. You could club the benefits of owning your own abode with tax benefits of Rs. 5 lakhs annually. Just apply for a Home Loan! Based on your eligibility, you could secure a sizeable amount to purchase your first house. 

Once you qualify for the following general eligibility criteria, you can apply for your Home Loan and enjoy the tax benefits that come along.  

  1. Age: 18-70 years 
  2. Income: Rs. 25,000 and above
  3. Employment Status: Salaried or Non-Salaried
  4. Total Work Experience: Over 2 years
  5. Credit Score: 750 and above
  6. Residence Type: Permanent Address or Non-Resident Indian (NRI)
  7. Loan To Value (LTV) Ratio: Up to 90%
  8. Property Type: Under Construction/Completed, Project/Land, Buy Land and Build Home, or Build On Own Land

Tax Benefits with Home Loans

Investing in getting your own home is one of the best decisions you could make. The government of India thinks so, too! 

Tax Deduction On Principal Amount

Under Section 80C of the Income Tax Act, you can claim tax deductions on the interest payments made, including the processing fee. Through Section 80C, you can also avail of tax exemption on principal repayments up to Rs. 1 lakh on loans taken for residential properties. 

Though, bear in mind, that you cannot sell this property within 5 years of possessing this. The sale of the property will result in the tax exemption being lifted and will get added to your income. 

Tax Exemption Before Construction On Interest

Enjoy tax deduction on interest paid during the pre-construction phase, which can be paid in 5 equal parts. You can claim 20% every year, but it should not exceed more than Rs. 2 lakhs p.a., including interest. 

Additionally, under Section 80C, you can claim tax exemption on the registration of the house and stamp duty. However, they must be claimed during the same year, post which you won’t be able to claim them. 

Tax Benefits on Housing Loan Interest

While paying EMIs on your Home Loan, the interest can be exempted under Section 24, with a discount of up to Rs. 2 lakhs annually. However, this depends on whether you reside at the property or are renting it out.  

Here, if the property has been rented out, you can avail of a discount on the interest, and there’s no upper limit. But, since you will be receiving rent, that will come under income earned through the property, which is liable to tax deductions.

Section 80EE, Income Tax Act

You need to have claimed tax relief of Rs. 50,000 between the years 2014 to 2015 and, again, between 2016 and 2016. It needs to have been your first house, and the property must not exceed more than Rs. 50 lakhs. The maximum loan against the property can be up to Rs. 35 lakhs.

Section 80EEA, Income Tax Act

On the 1st of February 2021, the government extended the additional interest exemption of Rs. 1.5 lakhs till the 31st March 2022. You can save up to Rs. 3.5 lakhs on interest by clubbing this exemption with the tax deduction available under Section 24B for Rs. 2 lakhs. 

Getting your own place? Check! Tax exemptions? Check! ,

So, what are you waiting for? It’s time to dive into the tax benefits of home loans!

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