It is common knowledge that the Income Tax Act, 1961 offers benefits that you can avail when applying for a housing loan. It not only decreases your tax liabilities but also improves cash flow management. Tax benefits are available for the principal repayment, as well as, the interest paid on the borrowed amount.
Add a summary table of “Tax Benefits on Home Loan”
Buying your own home is a dream come true for everyone. The Indian government has always shown a great inclination to encourage citizens to invest in a home. Thus, a home loan is eligible for tax deduction under section 80C. And when you buy a house on a home loan, it comes with multiple tax benefits too that significantly reduces your tax outgo.
When getting a home loan you can save tax as per the provisions of the Income Tax Act, 1961. Even more so after the announcements made during the latest financial budget 2019. While a housing loan can help you get a house for yourself, it can also turn out to an expensive affair. But the various tax benefits that come along with the loan helps you save money every year. Take a look at how you can make the most of these benefits.
Below listed are the various tax rebates on home loan
1. Self-occupied first-time homebuyers
If you are buying a home for the first time and plan to live in it, you may claim benefits of up to INR 1.5 lakh on an annual basis under Section 80C of the Income Tax Act, 1961. If you are a senior citizen, the tax deduction increases to INR 2 lakh.
If the construction is completed within five years from the end of the financial year when the home loan is availed, an interest of up to INR 2 lakh is eligible for tax benefits under Section 24(b) of the Income Tax Act, 1961. This deduction increases to INR 3 lakh if you are a senior citizen.
If the construction is not completed within five years, an amount of INR 30,000 per annum is exempted from your income.
2. First-time buyers for homes that will not be self-occupied
If you rent out your first home or keep it vacant (deemed to be rented), the tax benefits are as stated:
If you live in another city, an amount of INR 1.5 lakh on the principal repayment is eligible for benefits under section 80C, of the Income Tax Act, 1961.
The deductions on the interest payment are capped at the lesser of total interest paid on all properties and up to INR 2 lakh, under Section 24(b).
3. Second-time buyers or additional property holders
If you own more than one property, you are not eligible for principal repayment benefits on additional homes except the self-occupied house.
Interest benefits are capped at the lower of INR 2 lakh or actual interest across all properties. This benefit can be claimed under Section 24(b) of the Income Tax Act.
4. Housing loan availed for an under-construction property
If you purchase a house that is under construction with a housing loan, the Income Tax Act, 1961 offers no tax benefits on the principal repayment amount during the construction period.
The interest paid during the construction period may be divided over five financial years after the project completion or when you get possession. However, the interest benefits are capped within the overall maximum of INR 2 lakh per annum.
It is advisable that you thoroughly research and understand the various tax benefits available on housing loans, especially if you are eligible for PMAY scheme. You may also use an online housing loan tax benefit calculator to determine the exact amount you may save on your total tax liabilities on availing of a house loan. Apply now for a Bajaj Finserv Home Loan at Finserv MARKETS!
You should also read about prepayment of home loan.
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