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Tax Benefits on Home Loan

By Finserv MARKETS - Sep 13,2021
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Check out Housing Loan Tax Benefits  

Dream of owning your own home someday? A housing loan can help you make this dream come true. Before you avail a home loan, however, you need to account for the EMIs and ensure that you are capable of repaying the loan on time. But did you know that a home loan is not just an added expense? It can also help you save some money, thanks to the tax benefits it offers.

In order to make it easier for people to realize their dream of owning a house, and in an effort to encourage more people to invest in residential real estate, the government of India has, time and again, given incentives to home buyers in many forms. One such avenue is the set of tax benefits that you can avail when you take a housing loan.

Your home loan has two key components – the principal and the interest. The principal is the original amount that you borrow, and the interest is the additional charge that is levied on the loan. Both these components come with their own tax benefits.

And here is how you can save taxes with your home loan.

Tax benefits on the Repayment of Home Loan Principal

As per section 80C of the Income Tax Act, 1961, you can claim the principal component of the repayments made during the year as a deduction from your total income. The maximum amount of deduction you can claim is Rs. 1,50,000.

Here are the other important things to note about this tax benefit.

  • This deduction is available for both self occupied properties and for let-out properties.

  • It also covers the stamp duty and the registration charges, but this can be done once only.

  • To get this tax benefit, you cannot sell the house within 5 years of possession.

Tax Benefits on the Repayment of Home Loan Interest

The EMIs you pay also have an interest component. Section 24 of the Income Tax Act, 1961 gives you tax benefits on these interest repayments.

Here are the details regarding the amount of deduction you can claim:

  • For self-occupied properties, you can claim a maximum deduction of Rs. 2 lakhs, for the interest repaid on your loan.

  • For properties that are let out, you can claim the whole interest paid on your home loan.

  • If you do not purchase your house or complete its construction within 5 years of taking the loan, you can claim only Rs. 30,000 as a deduction.

Additional Deduction under Section 80EE

The Income Tax Act, 1961 also gives additional benefits on home loan interest for first-time home buyers under section 80EE. The maximum deduction allowed as per this section is Rs. 50,000.

Here are the key points of interest under section 80EE.

  • Deduction under this section is available over and above the benefits under section 24.

  • The value of the house property should be Rs. 50 Lakhs or lower.

  • The amount of home loan availed should be Rs. 35 Lakhs or lower.

  • This benefit is applicable only for loans sanctioned between 1st April 2016 and 31st March 2017.

Additional Deduction under Section 80EEA

This section of the Income Tax Act, 1961 allows you to claim the interest paid on the home loan as a deduction from your taxable income. The maximum limit of deduction permitted under this section is Rs. 1,50,000.

Here are the conditions for availing this tax benefit.

  • The loan should have been sanctioned between April 1, 2019 and March 31, 2022.

  • The value of the house property should be Rs. 45 Lakhs or lower.

  • You must not claim the deduction under existing section 80EE.

Conclusion

Your home loan can help you reduce the burden of taxation in many ways. You can now factor this into your financial plan and ensure that you make the most of your home loans by saving taxes. This way, not only do you get to own your dream house, but you also enjoy some tax benefits along the way.

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