In order to fulfill its vision of ‘Affordable Housing for all by 2022’, the government introduced the Pradhan Mantri Awas Yojana (PMAY) in the year 2015. The scheme aims to encourage people living in ‘kutcha’ or temporary homes to avail a home loan at a subsidized rate. The PMAY subsidy can be availed by people belonging to the following economic classes-
Economically Weaker Section (EWS)- Annual Income less than INR.3 lakhs
Low Income Group (LIG)- Annual Income up to INR.6 lakhs
Middle Income Group (MIG)-Annual Income up to INR.12 lakhs (MIG1) and INR.18 lakhs (MIG2)
In order to cash-in on the home loan subsidy offered by the government, a lot of first-time home-buyers that fall into the above-mentioned income criteria have applied under this scheme. Another enticing aspect, apart from the subsidized home loan EMI is the tax benefits an applicant enjoy under the PMAY.
Under the PMAY scheme, the government has decided to reduce the GST rates from 12% to 8% on all the applicable home loans under PMAY CLSS (Credit Linked Subsidy Scheme). Properties that are still under construction under the CLSS are also eligible for a reduced GST of 8%. Applicants under the EWS, MIG, and LIG can avail the benefits of these reduced rates. This reduced GST is a boon for the builders as well. The 8% GST allows a scope for sufficient incentive for the builders and developers under the affordable housing projects.
The PMAY scheme has certain strict provisions for availing home loan benefits. A key eligibility criterion for PMAY is that the applicant must not have a ‘pucca’ or permanent home in his/her name or in the name of any family member. Thus, ideally, the home loan Emi subsidy under the PMAY would be given to first-time home buyers. Depending on whether the house would be self-occupied or rented-out, the tax benefits on its home loan will change. Let us have a look how!
Home Loan Tax Benefits On First Home – Self-Occupied
The principal repaid on your self-occupied home loan can be claimed up to INR.1.5 lakhs as investment eligible under Section 80 C of the Income-tax Act for tax deductions. Senior citizens can enjoy an extended claim of INR.2 lakhs for the same.
Home loan applicants can avail tax exemptions of up to INR.2 lakhs on the interest paid if the construction of the self-occupied property is completed within 5 years of availing the home loan. If the construction of the property exceeds 5 years, the applicants can only claim a benefit of INR.30,000.
Loans availed for purchase of Affordable houses up to INR.40 lakh can enjoy an additional benefit of INR.1.5 lakhs.
Home Loan Tax Benefits On First Home – Rented/Vacant
Applicants who have availed a home loan for vacant or to be rented property can enjoy tax deductions up to INR.1.5 lakhs under Section 80C. However, the property owner can only enjoy this deduction if he/she is staying in a different city for work.
The applicant can get an exemption on the interest at the lower of the following two- a) INR.2 lakh, b) actual interest paid for all properties owned by the taxpayer.
Tax Implications On Under-Construction Property
While there are not many benefits on the principal of a loan for an under-construction property, a home loan applicant can still avail some tax benefits on the interest paid. According to Income Tax Rules, the interest paid for under-construction properties can be claimed in equal parts for over five financial years post the completion or the possession of the property. The overall annual limit is INR 2 lakh for the same. To calculate your five-year installments on the home loan, you can take the help of any housing loan EMI calculator that is available online.
Home Loan Tax Benefits on a Joint Application
Joint home loan applicants can enjoy more benefits than individual applicants. For instance, each co-applicant of a home loan can individually avail tax benefits on his/her property. Moreover, each of the co-applicant can claim a maximum of INR.1.5 lakh on principal repayment under Section 80 C and INR.2 lakh on interest payment under Section 24 of the Income Tax Act, per annum. However, a point to remember here is that the total tax benefits by all the co-applicants cannot exceed the limit of the total principal repayment and the interest paid during the financial year.
Thus, all said and done, availing a home loan is an excellent tax-saving tool. Whether the house is self-occupied or leased out on rent, a tax-payer can avail tax benefits up to INR.2 lakh. This considerably reduces the tax liability of a home buyer. Moreover, applying under the PMAY CLSS provides further advantages in terms of subsidized home loan EMI and interest rates. The scheme is especially beneficial for first-time home loan borrowers. However, PMAY also makes provisions for making enhancements or additions to the existing ‘pucca’ house of people belonging to EWS, LIG and MIG categories. These enhancements could be any architectural repair or addition of an extra room, kitchen or toilets to the house.
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