Most people wish to own their homes, and for this purpose, they usually avail home loans from banks and financial institutions to fulfill their dreams. The government, in a bid to encourage people to invest in properties, offers tax benefits on home loans under the Income Tax Act, 1961. If you wish to take a home loan, you must be aware of the tax benefits for which you qualify.
What does a home loan comprise of?
When you take a home loan, you make repayments towards the principal amount you have borrowed as well as the interest component of the loan. Tax deductions are offered for both of these components under Section 24B and Section 80C of the Income Tax Act.
1. Tax benefits on the principal repayment amount
People who take home loans can claim a maximum deduction of Rs.1.5 lakh p.a. on the principal repayment amount of their EMIs, under Section 80C of the Income Tax Act. To claim this deduction, the property will have to be completely constructed. In case the property is sold within a period of five years of claiming possession, you will not qualify for this benefit.
2. Deductions for registration fees and stamp duty charges
Section 80C of the Income Tax Act allows you to claim deductions for registration and stamp duty charges too. However, the amount claimed for these charges will have to be within Rs.1.5 lakh including your principal repayment amount. You can avail this benefit even if you do not take a home loan to purchase a property. Moreover, you can only claim this benefit at the end of the year in which said expenses were incurred.
3. Deductions on the interest component of the loan
Besides the tax deductions you can claim on the principal repayment amount, you can also claim benefits on the repayment of the interest component of the loan under Section 24B of the Income Tax Act. In case the property is occupied by self, the deduction you can claim for it is capped at Rs.2 lakh p.a., provided the house is completely constructed within a period of five years. If the construction of the property takes longer than five years, the maximum deduction you can claim is limited to Rs.30,000 p.a. In case the property has been let out on rent, you can claim the whole interest amount as a deduction. Moreover, unlike self-occupied properties, there is no time limit within which the property must be constructed.
4. Joint home loans
Taking a joint home loan can double the amount of money you can claim as deduction as each applicant is eligible to claim Rs.2 lakh on the interest component of the loan and Rs.1.5 lakh on the principal. To claim this deduction, both the applicants must be the property’s co-owners.
First-time home buyers
If you are purchasing a home for the very first time, you can claim a deduction on the same under Section 80EE of the Income Tax Act. An extra Rs.50,000 can be claimed until the repayment of the loan. However, this deduction can only be claimed on loans that were availed between the 1st of April 2016 and the 31st of March 2017. Moreover, the loan amount must not be more than Rs.35 lakh and the property value must be under Rs.50 lakh for you to be eligible for the deduction.
Second propertyInvestment in a house property has been further incentivized by the government. Before Budget 2019, you could only treat one property as self-occupied. In case you had a second property, notional rent would be calculated and taxed as income. The current budget has made provisions for waiving off the rent received from the second self-occupied property.
5. House Rent Allowance
In case you have availed a home loan but reside in a rented place simultaneously, you qualify for benefits related to the home loan and HRA as well. You can claim HRA based on the lowest of the following:- Actual HRA provided by your employer
- Actual rent minus 10% of your salary
- 50% of your salary in case you reside in a metro, and 40% in case you reside in a non-metro
Home loans are the most effective and easiest options to finance your dream of purchasing a property and constructing your own home. There are several lenders across the country that offer home loans at attractive interest rates. All you have to do is compare them and look out for additional charges to find the option that best suits your financial requirements.
Comments
Post a Comment