Buying a home using the home loan route comes with immense benefits. After all, you get to be a proud homeowner along with several income tax benefits.
The Income Tax Act 1961 allows certain deductions and exemptions when you avail a home loan. They range from exemptions on repayment of the principal amount to interest paid to benefits on availing a joint home loan.
We bring you more details on each one of them.
For self-occupied property
This is one of the popular and significant benefits of availing a home loan. Under Section 24 of the Income Tax Act, interest paid on a home loan up to a ceiling of Rs 2,00,000 can be shown as a loss or a deduction for self-occupied property. However, this is subject to the property being completed in five years.
For under-construction property
For under-construction property, where pre-EMI is being paid, nothing can be claimed during the construction phase. However, once the property is handed over, the entire portion of the interest paid during the construction phase can be claimed in five equal instalments spread over a period of five years.
For let-out or deemed to be let-out property
For those who own more than one property, only one house can be shown as self-occupied, the rest need to show as let-out even if they are not let out. Interest paid on let-out properties can also be shown as a loss from house property subject to a ceiling of Rs 200,000. This provision was revised during the Union Budget 2017. Any further loss on the house property is permitted to be carried further up to eight years, which can be set off as a loss against house property only.
Section 80C allows for deduction on a host of investments and insurance payments like life insurance, investment in the provident fund, equity-linked savings scheme, etc. Repayment of the principal of a self-occupied property and let-out property is also allowed as a deduction here within the overall limit of Rs 150,000.
Thus, you can plan to utilise this deduction and plan the rest of your investments around the principal repayment figure.
When you use Section 80C benefit for principal repayment, you should bear in mind that the property cannot be sold for five years. Should it be sold, the entire deduction would be reversed and added to your income.
Did you know that registration charges, stamp duty and any other statutory charges paid can also be claimed under Section 80C of the IT Act? This is irrespective of the fact if your house is bought on loan or out of own funds.
To increase the home loan limit, several homebuyers apply for a joint home loan with two or more borrowers. So, can co-borrowers avail tax benefits? The answer is yes!
All the co-borrowers can avail benefits on repayment of principal and interest in proportion to which they have contributed to the repayment of the home loan if they are the co-owners as well. If both the spouses pay equally towards the EMIs, then each one of them can avail full benefits subject to maximum ceiling set.
For example: On a joint home loan of Rs 50,00,000, if Rs 500000 is paid as interest in a particular FY, and Rs 75000 is paid towards principal and the share in the property is equal, both the spouses can claim towards interest payment an amount of Rs 250,000 each and Rs 37,500 toward principal repayment.
If you are buying your first property, you are in for some good news.
In addition to the benefits under Section 80 C and Section 24, you are allowed an additional deduction of Rs 50,000 under Section 80EE of IT Act, subject to certain conditions. This exemption is allowed till the time the entire loan is repaid.
The conditions being:
• You shouldn’t have had another house property in your name on the date of home loan sanction, which should be from a financial institution only.
• The deduction is available only to individuals and not to HUFs or AOPs.
• The value of the house should be Rs 50 Lakh or lesser.
• The loan availed should be from a financial Institution or a housing finance company.
• The value of the loan should be Rs 35 Lakh or lesser.
If you have a home loan and are residing elsewhere due to valid reasons like your place of work being away or in another city, schooling needs of your children, caring for an aged member of the family, etc, then you are allowed to claim HRA benefits as well.
However, you should be in possession of valid proof in support of claiming both HRA and Home Loan tax benefits.
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