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Everything About Tax Benefit on Home Loan Rate Of Interest

By Finserv MARKETS - Jan 30,2019
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Tax Benefit On Home Loan Interest Rate

Home loans can be of great help if you plan to buy your dream house. Due to a significant change in the rate of interest on home loans, your desire to own a home is no longer a distant dream. Buying a house not only brings satisfaction and a sense of safety, but it also brings with it financial security as well. Many people know about home loans, but only a few know about tax benefits of home loans.

One of the simplest ways of knowing about this is by using the home loan tax benefit calculator. This calculator will give you the break-up of your repayment process in within minutes and allow you to review your payment in advance.

Home Loan Tax Benefit Calculator

  • Tax benefit on home loans is the same for both self-occupied and rented properties which are up to Rs 2 lakhs under Section 24(b) of the Income Tax Act, 1961.
  • It also aims to confine the loss on house property, which can be reduced from other incomes like salary to Rs 2 lakh only under Section 24 of the Income Tax Act, 1961.

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Following are the tax savings on home loans:

  • Tax Benefits on First Home or Self-Occupied Properties

Individuals with self-occupied properties can avail tax benefits on interest paid up on home loans, up to Rs 2 lakh, under Section 24(b) of the Income Tax Act, 1961. This would be due to the deductions from other parts of your income like salary or income from any other source. However, this would be applicable only if the construction of your house is completed within 5 years, calculated from the end of the financial year in which you have taken the loan.

  • Tax Benefits on Rented House

For rented homes, it is 30% of the rental income which is municipal tax, standard deduction, and interest paid on the loan for the house is allowed for tax deductions. After all of these deductions, the rental income is zeroed down and then termed as loss from house property.

Hence, a taxpayer can save on his/her total income tax payable on rental income as well as your total income. The tax benefit on rented homes remains the same as in cases of a second home or additional property and also in cases where the house is under construction.
Learn more how you can also avail tax benefit on personal loan under income tax act.

  • Types of Tax Deductions on Home Loans

Here are 3 sections under which you can claim for tax deductions on home loans:

Deduction on Interest under Section 24 (b)

Tax benefits on home loans for payment on interest is allowed under Section 24 (b) of the Income Tax Act, 1961.

If you’re paying your monthly EMIs for a home loan, then the interest component can be claimed as tax deduction. You can claim this deduction at the starting of the year wherein the construction of your house is completed. If you have a rented home, then the entire interest for that year can be claimed as a deduction as well. Also, note that even if you have missed your EMI payments during the financial year, you can still claim for a tax deduction on the interest portion of the EMI.

Deduction on Principal Repayment under Section 80C

You can also claim the principal repayment under Section 80C of the Income Tax Act, 1961. You can claim a maximum amount of Rs. 1.5 Lakh as a deduction under this section. Under the EMI plan, prepayment charges, service fee, processing fee are also eligible for deductions under Section 24 (b).

Deduction for First-Time Buyers under Section 80EE

This would be an additional deduction of about Rs 50,000 for interest on home loans. It would be over and above Rs 2 lakh deduction under Section 24 (b) and Rs. 1.5 lakh under Section 80C of the Income Tax Act, 1961. For this, you will have to provide a statement from your lender that shows the amount payable and the amount also paid towards the principal and interest. Your balance income after all deductions would then be taxed as per the income tax slabs.

Highlights of New Tax Rules on Home Loan Tax Benefits (FY 2020-2021)

Let’s have a look at the important pointers of the new tax rules on home loan tax benefits:

  • Under section 24 of the Income tax Act, individuals with self-occupied property can claim a maximum deduction of Rs.2 lakh as the home loan interest tax benefit.
  • Under section 24 of the Income Tax Act, individuals who have rented their property can claim any amount they have paid as interest.
  • Individuals who are co-borrower as well as co-owner of the house, can claim up to the maximum deductible amount under this section.
  • Under Section 80C, the maximum deductible amount is Rs 1.5 lakh from Principal (including stamp duty and registration fee)
  • Under Section 80EEE, the maximum deductible amount is Rs.50,000 Additional interest (for first-time buyers)

Now that you have home loan tax benefits, ensure that you make the most of it to save taxes on your home loan.

For more information on home loans and tax benefits, visit Finserv MARKETS and apply for Bajaj Finserv Home Loan today!

“Finserv MARKETS, from the house of Bajaj Finserv is an exclusive online supermarket for all your personal and financial needs. Loans, Insurance, Investment and an exclusive EMI store, all under one roof – anytime, anywhere!”

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Bajaj Finserv Direct Limited ("BFDL"), erstwhile Bajaj Financial Holdings Limited is a registered corporate agent of Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz General Insurance Company Limited under the IRDAI composite registration number CA0551 valid till 10-Apr-2021. BFDL also renders services to Bajaj Finance Limited (‘BFL’) and Bajaj Housing Finance Limited (‘BHFL’) (referred hereinafter as ‘Lending Partner’) in sourcing of customers, providing preliminary credit support activities, fulfilment services and post-acquisition customer services related to lending business. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522