Everything you Should Know About Home Loan Tax Benefit

While purchasing a home involves substantial expenses, opting for a housing loan also allows for hefty income tax benefits. Learning about home loan tax benefit that property owners can enjoy under the Income Tax Act of 1961 is critical. It helps home-owners reduce financial stress significantly. 

Tax deductions benefit home-owners under both home loan components, namely, principal and interest. These are covered by the tax deduction benefits by Section 80(c) and Section 24(b) of the Income Tax Act, respectively. 

Tax deduction on interest paid

Section 24(b) of the Income Tax Act, 1961 allows individuals to enjoy tax deductions on the interest that has already been paid on the home loan. In case of a house that is self-occupied, individuals can claim loan interest tax deductions of up to Rs.2 lakh from their gross annual income. 

This, however, is applicable only if the construction is finished within five years. So the lion’s share of tax benefits is enjoyed when the property is under construction.  After a period of five years, they can avail maximum annual deductions of Rs.30000.

In case the property is rented to tenants, the total amount of interest paid on the housing loan is eligible for tax deduction. Additionally, there isn’t any time limit pertinent to the construction under such circumstances.

Deduction of tax on principal repayment

Another important home loan benefit tax that one should be fully aware of is Section 80(c) of the Income Tax Act that allows the property owners to avail tax deductions of up to Rs.1.5 lakh every financial year on the portion of principal repaid of the EMI. 

But, they can only benefit from this provision after the completion of property construction. Also, the benefit is reversed if the owner sells the property within five years of their possession. 

Stamp duty and registration charges deductions

Section 80(c) allows for tax deduction on stamp duty and registration fees even if there is no home loan taken. However, home owners can avail this benefit only in the year when the aforementioned expenses were made. They also need to remain within total overall limit (Rs.1.5 lakh) that is levied on the principal repayment. 

One of the many additional home loan for tax savings and advantages are:

Tax deduction on joint home loan

 If home loans are applied for jointly, then both individuals can claim for a tax deduction on the principal amount and interest up to Rs.1.5 lakhs and Rs.2 lakhs respectively. 

This neat provision doubles the tax deductions availed in comparison to home loans availed by a single applicant. Also, both co-applicants need to be joint owners of the property for this benefit.

To expedite this home loan process further, some very well reputed housing finance companies provide pre-approved offers. These offers are made available across several financial products such as home loans, loan against property and more. Individuals can easily check their pre-approved offer by providing their basic information such as name and contact details.

More often than not individuals perceive home loans as a high financial expenditure, but it can bring about a lot of home loan tax benefit if the financial decisions are taken wisely.