Total Tax With Home Loan₹1,57,588
Total Tax Without Home Loan₹2,47,500
Total Tax Savings₹89,912
Buying a home is almost everyone's dream and is also considered the most important financial goal. The sense of accomplishment and peace that comes with home ownership is priceless. Regardless of whether you buy or build a home, you will be making a large financial investment.
To encourage people to pursue their dream of owning a home, several sections of the Income Tax Act 1961 allow tax deductions for various components of buying or building a home, especially if a home loan is taken. If you're planning to buy a home soon, here's a quick guide to the tax benefits available.
Housing loan has two components- Interest payment and Principal payment. Please refer to the below table to understand how one can save on tax with a home loan.
|Income Tax Act
|Deduction up to ₹1.5 Lakhs on the Principal amount
|Deduction up to ₹2 Lakhs on the Interest amount.
|Additional deduction of up to ₹50,000 on the interest component for first time home buyers
Under this section, home loan borrowers are entitled to a deduction of up to ₹1.5 Lakhs on the principal amount if the conditions listed below are met
Below conditions are applicable for claiming home loan tax benefits under section 24 (b):
First-time home buyers can get an additional deduction of up to ₹50,000 on the Interest component, over and above the deduction of ₹2 Lakhs claimed in Section 24 (b), only if the following conditions are met:
The first-time home buyers can get an additional deduction of up to ₹1.5 Lakhs on interest payment over and above the deduction of ₹2 Lakhs claimed in Section 24 (b), only if the following conditions are met:
Using a home loan tax exemption calculator can provide you with several advantages. Below are some of them:
To claim tax deductions on a home loan, you can fill in home loan details such as interest and principal amount paid in the ITR or submit it to the HR department of your company. Post evaluation, they deduct the Tax at source on your income accordingly.
If you opt for a home loan with a co-borrower who also happens to be a co-owner, the potential for tax savings essentially doubles. Under section 80C and 24, both borrowers are eligible for tax credit on interest up to ₹2000.
Therefore, each of the borrowers can claim up to ₹3.5 Lakhs as annual tax benefit from the home loan.
You can claim Interest payment under section 24, provided you have received an interest certificate from them. Without a certificate, you would not be entitled to a deduction. The recipient of interest income who issues the certificate is obliged to pay from the interest income he receives. As far as principal repayments are concerned, they would not be eligible for tax benefits as only loans from notified institutions and banks are eligible for such deductions.
If you have taken out a home loan and are still living in a rented place, you will be entitled to the following benefits:
1. Tax benefit on repayment of principal according to section 80C
2. Tax benefits for the payment of interest according to section 24
3. House Rent Allowance (HRA)
You can only claim tax benefits from a home loan if your house is ready for occupancy in the given financial year. Once the construction of your house is complete, the HRA benefits will stop. If you have taken out a home loan, acquired a home, rented it out, and stayed in a rented accommodation, you will be eligible for all three of the above benefits. However, in this case, the rent received would be considered as your taxable income.
Disclaimer: The above calculator is only to enable the public to have quick and easy access to basic tax calculation and is subject to change in law and practices from time to time. The individuals are advised to get professional advice in exceptional circumstances