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Tax Benefits on Home Loan

By Amit Gupta | Published On Mar 27 2023 9:41 AM 1 min read 313 views 921 Likes
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Planning to buy your dream home? Here's how to save tax on your home loan

Home Loan Tax Benefits: Home loans are strictly given for the purchase or construction of a house. It has two components - Principal amount and interest amount. One can avail tax benefits on these components under sections 80C and 24(B) of the Income Tax Act, 1961

Home Loan Tax Benefits: One of the most important milestones in everybody's life is buying a dream house. And the convenient source of finance to fulfil this dream is a Home Loan.

In line with this aspiration, the government has always encouraged its citizens to invest in a home through various progressive schemes like Pradhan Mantri Awas Yojana.

But do you know, there are various tax benefits on availing a home loan under the Income Tax Act of 1961 (‘the Income Tax Act’)? It helps a person to save money on the expenditure of the taxable amount.

What Comprises Home Loan?

Home loans are strictly given for the purchase or construction of a house. It has two components - Principal amount and interest amount. One can avail tax benefits on these components under sections 80C and 24(B) of the Income Tax Act, 1961.

Tax Deduction on Interest Paid

Under Section 24(b) of the Income Tax Act, one can claim a deduction of the interest amount paid on home loan against the gross income For a self-occupied home, the person can claim the deduction of the interest amount upto a maximum of Rs 2 lakh. Whereas, for the property given on rent, there is no upper limit for claiming interest. However, the overall loss one can claim under the head ‘House Property’ is restricted to Rs 2 lakh only. Note: No Deduction towards Interest u/s 24(b) is allowed for Self-Occupied Property, if individual opted for “Simplified regime of Taxation u/s 115BAC ”

Tax Deduction on Principal Amount

The principal portion of the EMI paid can be claimed as a deduction under Section 80C up to a maximum of Rs 1.5 lakh. This deduction can only be availed after the construction of the residential house property is complete. Note: if you sell your property within 5 years from the end of the financial year in which possession of such property is obtained, this benefit will be reversed. Note: No Deduction towards sec 80C is allowed for the individual opted for “Simplified regime of Taxation u/s 115BAC”

Tax Deduction for Joint Home Loan

If a home loan is taken jointly, each borrower can claim a deduction on home loan interest up to Rs 2 lakh under Section 24(b) and tax deduction on the principal repayment up to Rs 1.5 lakh under Section 80C. This doubles the amount of deductions available when compared to a home loan taken by a single applicant. It is however required that both the applicants should be co-owners of the property and both service the EMIs and have not opted for new regime of Taxation u/s 115BAC

Deduction for Stamp Duty and Registration Charges

Besides claiming the deduction for principal repayment, a deduction for stamp duty and registration charges can also be claimed under Section 80C but within the overall limit of Rs 1.5 lakh. However, it can be claimed only in the year these expenses are incurred. Note: No Deduction towards sec 80C is allowed for the individual opted for “Simplified regime of Taxation u/s 115BAC”

Tax Deduction Under Section 80EEA for First-Time Buyers

Under the objective “Housing for All”, the government has introduced a new Section 80EEA to allow for an additional interest deduction for a maximum of up to Rs 1,50,000 in addition to interest deduction u/s 24(b) of Rs 2,00,000. This deduction is available only if the loan has been sanctioned on or before 31st March 2022. Note:No Deduction towards sec 80EEA is allowed for the individual opted for “Simplified regime of Taxation u/s 115BAC”

Tax Deduction for Second Housing Loan

Apart from the first property, a second property can also be considered as self-occupied property, if the first property cannot be occupied owing to business or professional reasons. However, the aggregate amount of deductions is subject to the respective caps mentioned above.

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