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Follow 8 Ways To Avail Tax Benefits On Home Loans

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Picukiusa is the Chief Business Development Officer at Picukiusa, a Magento design and development company headquartered in Redwood City, California. He is a Member of the Magento Association and an Adobe Sales Accredited Magento Commerce professional. Jan is responsible for developing and leading the sales and digital marketing strategies of the company. He is passionate about ecommerce and Magento in particular — throughout the years his articles have been featured on Retail Dive, Hacker Noon, Chief Marketer, Mobile Marketer, TMCnet, and many others.

An easy way to get the money you need to realize your dream of home ownership is through a home loan. To help citizens realize this dream of owning a house, the Government of India offers advantages on taking a Home Loan. A salaried or self-employed professional can take advantage of multiple tax benefits for home loans and be qualified to make real estate investments, thanks to the provision for income tax deductions under Section 80C.

Taxpayers can receive a rebate on the following two significant components of the amount they pay toward their mortgage. You can calculate home loan EMI using a calculator at your convenience.

8 Ways To Get Tax Benefits On Home Loans

These advantages lower your tax liability and support improved cash flow management. It is crucial to be aware of all of the tax credits for home loans because doing so can enable you to reduce your tax obligations significantly.

1. Deductible Interest Rates on Home Loans

To buy or build a property, you must get a loan. If the loan is being used to construct a dwelling, it must be finished within five years of the end of the fiscal year in which the loan was obtained.

If you are making EMI payments for your mortgage, they consist of two parts:

  •  Interest Payment
  • Repayment of Principal

The interest component of an EMI paid over the year is eligible for a tax rebate. Section 24 permits deductions up to Rs. 2 lakh from your income. Beginning with the tax year 2018-19, a max of Rs 2 lakh interest on the self-residential property can be deducted. No maximum amount may be claimed as interest on rented property. The most that can be lost overall and still be covered under “House Property” is only Rs 2 lakh. Beginning in the year that the house’s construction is complete, you can take this deduction.

2. Deductible Interest Rates Paid before the Construction Phase

Let’s say you bought a house that is still being built, and you haven’t moved in yet. But you are covering the EMIs. In this case, loan interest cannot be written off until the building is completed or immediately if you buy a fully designed property.

3. Deduction for the Principal Amount

The significant component of EMI payable for the entire year is deductible under Section 80C- all that can be asked is 1.5 lakh rupees.

Moreover, the home cannot be sold for this benefit within the initial five years of occupancy. If this is not the case, the previous deduction will be reversed and applied to your earnings for the fiscal year.

4. The Stamp Fee and the Registration Fees Are Reduced

But besides the debt repayment deduction, Section 80C allows taxpayers a deduction for stamp duty and registration fees up to Rupees one lakh fifty thousand.

5. Supplemental Deduction under Section 80EE

Section 80EE allows home buyers to claim an extra deduction of up to Rupees fifty thousand. To claim this deduction, the following conditions must be met:

The following conditions must be met to claim this deduction: the loan amount cannot exceed Rupees thirty-five lakh, and the property cannot be worth more than Rupees fifty lakhs.

The loan had to be made between 1st April 2016 and 31st March 2017.

Furthermore, the individual did not own any other dwellings as of the date of loan acceptance; they have indicated that they are first-time homebuyers.

Section 80EE has been resurrected, but it only applies to loans made before 31st March 2017.

6. Section 80EEA Advanced Deduction

The 2019 budget included an additional deduction under Section 80EEA for homebuyers of up to rupees one lakh fifty thousand to support the housing sector. 

To be eligible for this tax credit, you must fulfill the following requirements:

The stamp valuation of the property cannot exceed Rs. 45 lakhs.

The applicant has no other property on the day of loan acceptance, indicating they are first-time home buyers.

If this provision is used, the person must not be allowed to use Section 80EE.

7. Deductible Joint Loan

If indeed the loan was obtained collectively, Section 80C allows each loan bearer to deduct up to Rs 2 lakh in housing loan interest and up to Rupees one lakh fifty thousand in principal repayment from their taxable income.

To be qualified for this tax credit, they also must jointly own the asset that was lent. Therefore, you are eligible for a more significant tax deduction when you borrow money from family members.

8. Section 80C Tax Benefits for Home Loans – Principal Repayment

You may exclude a maximum of Rupees one lakh fifty thousand in principal payments from your annual taxable income. It applies to both owner-occupied and rented residences. Additionally, the application fee, as well as stamp duty, are covered. It is only available once.

Please keep in mind that to claim a property, it must be entirely constructed.

You could claim the deduction if you sell your property within five years of purchasing it. If you sell your home within five years of taking possession, any claimed deduction will be reversed in the year of sale. This money will also be included in your income for the year the house is sold.

Final Words

Although taking out a home loan entails a cost in terms of EMIs, it also has advantages. Housing loan interest deduction made possible by the Income Tax Act of 1961 gives several advantages while paying back a home loan. Firstly, making on-time EMI payments over time helps raise your credit score. Second, by providing numerous tax benefits, it can also assist you in lowering your tax obligation.

Your house loan might be wisely used to help you realize your dream of owning a home. It is possible if you choose the best home loan options and consider all of the advantages offered by reputable lenders. By effectively utilizing the tax deductions at your disposal, you can significantly reduce the taxes you pay on the loan’s payback.

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