A home loan is a long-term financial commitment. Therefore, it is important to understand the tax benefits associated with home loans. Understanding the tax implications can help you save a significant amount of money. Several housing loan interest deduction provisions exist in the Income Tax Act 1961. These deductions are available for all home loans.
Components Of A Home Loan Repayment
There are several components of a home loan repayment. Each of them has a corresponding tax benefit. One needs to be aware of these to make an informed decision. Briefly speaking, these are the components and the tax benefits:
- Principal repayment (Section 80C): Eligible for a deduction of up to Rs. 1.5 lakhs under Section 80C of the Income Tax Act, 1961. This deduction is available only if the property is self-occupied and not rented.
- Stamp duty (Section 80C): Eligible for a deduction of up to Rs. 1.5 lakhs under Section 80C. This deduction can be claimed only in the year these expenses are incurred.
- Interest repayment (Section 24(b)): Eligible for a housing loan interest deduction of up to Rs. 2 lakhs under Section 24(b). This deduction can be claimed only if the loan is taken for the purchase or construction of a house and the construction is completed within 5 years from the end of the financial year in which the loan was taken.
- Interest repayment (Section 80EE): Eligible for a deduction of Rs.50,000 on interest repayment of a home loan. Applicable only if the loan amount is Rs.35 lakh or less and the property’s value does not exceed Rs.50 lakh.
- Interest repayment (Section 80EEA): Eligible for a deduction of up to Rs. 1.5 lakhs on interest repayment of a home loan. Applicable only if the stamp value of the property is Rs. 45 lakhs or less, and the taxpayer is not eligible to claim a deduction under Section 80EE.
Tax Benefits On Principal Repayment Of Home Loan
Firstly, let us understand the tax benefits available on the principal repayment of a home loan. As per Section 80C of the Income Tax Act, 1961, the principal repayment of a home loan is eligible for a deduction of up to Rs. 1.5 lakhs. This deduction is available for the year in which the repayment is made. It is important to note that this deduction is available only if the property is self-occupied and not rented out.
Read: Understanding Home Renovation Loans and Interest Rate
Tax Benefits On Interest Repayment Of Home Loan
Secondly, let us look at the tax benefits available on the interest repayment of a home loan. As per Section 24 of the Income Tax Act, 1961, the interest repayment of a home loan is eligible for a deduction of up to Rs. 2 lakhs for a self-occupied property. If the property is rented out, there is no limit on the amount of interest that can be claimed as a deduction. However, it is important to note that the interest paid during the pre-construction period can be claimed as a deduction in five equal instalments starting from the year the construction is completed.
Other Tax Benefits On Home Loans
In addition to the above, certain other tax benefits are available on home loan rates. If you have taken a joint home loan with your spouse, you can claim tax benefits on the principal and interest repayment in proportion to your share. Additionally, if you have taken a home loan for a second property, you can claim tax benefits on the interest repayment without any limit.
Conclusion
Taking advantage of tax benefits on a home loan can lighten financial responsibilities and promote home ownership. These advantages provide a place to live and offer chances for lasting financial security. By using these incentives wisely, people contribute to real estate growth and strengthen their own financial well-being. Staying updated on tax rules helps make informed choices for immediate savings and a brighter future.
Read: What are Advantages of Home Loans for Women
