Having a house of your own is a dream for all – and to help you achieve this dream, banks and financial institutions offer affordable home loans with several add-ons and benefits, such as flexible repayment tenor, easy monthly EMIs, home loan balance transfer, part-prepayments and so on. One of the biggest advantages apart from these is the home loan tax benefit offered on the principal and interest amount. If you too are planning to take a housing loan, this piece of article is for you! Read on to know all about home loan tax benefits and how to claim them.
What Is Home Loan Tax Benefit?
Besides making the whole process of buying a house easier, a home loan can help lower your income tax outgo. As per government rules and regulations, tax exemptions can be made on housing loans under the Income Tax Act of 1961.
Home Loan Tax Benefits You Should Know About
Here is a look at the various tax benefits on home loans in India.
Home Loan Tax Benefit on Interest Component
A housing loan features two components – the interest component and the principal component. The EMI or Equated Monthly Installment you pay towards the home loan includes the repayment of both these components. The current home loan interest rate in India starts at 8.60% for salaried borrowers and 9% for self-employed borrowers. This may go up to a rate of 14% in both cases.
Section 24 of the Income Tax Act allows tax exemptions on the payable interest amount. Borrowers can avail of a maximum benefit of INR 2 Lakh in a financial year under this rule. However, one must keep in mind that the above tax benefit on the interest component is applicable for self-occupied properties only. If you have purchased two loans for two homes and the second one is occupied by your parents, spouse, or family, the total tax deduction claimed should not exceed the limit i.e. INR 2 Lakh in a financial year.
Home Loan Tax Benefit on Interest Component
Apart from home loan tax deductions on the interest component, borrowers can avail of the tax benefits on the principal component. According to Section 80C of the Income Tax Act, one can claim tax exemptions up to INR 1.5 Lakh on the principal amount repaid during a financial year. However, certain conditions need to be considered when claiming tax benefits under this section. Firstly, the property in question should be self-occupied by a taxpayer. Secondly, the taxpayer should have possession of the property for at least 5 years.
Furthermore, one-time tax deductions can also be claimed under Section 80C of the Income Tax Act for the payment of registration charges and stamp duty charges for the house. However, the deductions claimed must not exceed the maximum limit i.e. INR 1.5 Lakh in such a case.
Home Loan Tax Benefit for First-Time Borrowers
As a first-time borrower, you can claim additional tax benefits of up to INR 50,000 under Section 80EE of the Income Tax Act, by taking a loan to purchase a property for the very first time. Nevertheless, the following conditions must be met when claiming tax benefits:
• The principal amount for your home loan should not exceed INR 35 Lakhs
• The property value should not exceed INR 50 Lakhs
• You must not have any other property in your name in India as of the date of the home loan sanction.
• You must have taken the home loan in the financial year
Additional Home Loan Tax Benefits on Affordable Housing
In case you have purchased a home loan for a property that comes under the ‘affordable housing’ category, then under Section 80EEA of the Income Tax Act, you are eligible for an additional tax deduction of up to INR 1.5 Lakhs. This can be availed on the repayment of the home loan interest component over and above the INR 2 Lakh deduction limit. Thus, a total deduction oF INR 3.5 Lakh can be claimed against the home loan interest component for taking affordable housing in a financial year.
Steps to Claim Home Loan Tax Benefits
Owing to the online presence of almost all banks and financial institutions these days, potential home loan borrowers can claim tax benefits from any region in India. To claim the benefits, all you have to do is follow these simple steps:
Step 1: Firstly, make sure the housing property is self-occupied and is owned/co-owned in your name.
Step 2: Estimate the total amount you can claim as housing loan tax deductions under the various sections of the Income Tax Act.
Step 3: Claim the various tax deductions assessed under the ITA sections while filing your Income Tax Returns (ITRs). Also, be sure to submit all the documents required for declaring the home loan tax deductions.
Home loan tax benefits can help you multiply savings and reduce the overall cost of buying a house. In case you need some assistance calculating the tax benefits, you can use an online home loan calculator to measure the same.
How to Calculate Home Loan Lax Benefit?
Whether you are a first-time borrower or someone who knows the game, the best way to calculate tax benefits on a housing loan is to use a home loan calculator. It is an automated tool that works on a formula to provide instant results, thus making the calculation easy and hassle-free. All you have to do is:
• Access the online calculator
• Enter some details – the principal amount, the home loan interest rate, your annual income etc.
• The tool will automatically fetch the exact amount you will be saving on taxes on your home loan
If you are looking for an affordable home loan in India, make sure you do your research well and settle for a lender offering the most competitive interest rates and added benefits, like a home loan balance transfer, prepayment, affordable EMIs, and so on. To know how many tax exemptions you are eligible for, make use of a home loan calculator for tax savings.