HOME LOAN TAX BENEFITS: 6 WAYS TO AVAIL TAX BENEFITS ON HOME LOANS

Owning a home is a dearly held aspiration for many. To make it a reality, a lot of people opt for home loans to finance what may easily be their biggest purchase.  If you too are looking for some housing finance,  you should know your next home loan could bring you several home loan tax benefits that include reducing your taxable income and saving money. Read on and learn how to avail of the various tax benefits available under the Income Tax Act, 1961.

WHAT IS A HOME LOAN?

Banks and financial institutions offer home loans to individuals who wish to purchase land, property or construct a house. It is a type of secured loan where the property itself acts as collateral for the loan. In addition to helping individuals fulfil their dream of owning a home, home loans also provide certain home loan tax benefits. 

WHAT ARE THE AVAILABLE INCOME TAX BENEFITS ON HOME LOANS?

1. Deduction on principal repayment under Section 80C: As per Section 80C of the Income Tax Act, borrowers can claim a deduction of up to Rs. 1.5 lakh on the principal amount repaid towards the home loan. You can claim this deduction within the overall limit of Rs. 1.5 lakh for various investments and expenses eligible for tax deductions.
2. Deduction for interest paid on housing loan under Section 24: Under Section 24, borrowers can claim a deduction of up to Rs. 2 lakh on the interest paid on the home loan. This deduction is available for both self-occupied and rented properties. The maximum deduction limit is Rs. 2 lakh for self-occupied properties, while you can claim the actual interest paid as a deduction for rented properties.
3. Tax benefit on interest remitted if the house is being constructed: You can claim the tax benefit on interest payments in five equal instalments from the year of completion of the construction if you are availing loan for the construction of a house.
4. House loan tax exemption under Section 80EE: Section 80EE provides an additional deduction of up to Rs. 50,000 on the interest paid on the home loans for first-time homebuyers. You can claim this deduction if the loan amount not exceed Rs. 35 lakh, and the value of the property not exceed Rs. 50 lakh. This deduction is over and above the limit of Rs. 2 lakh under Section 24.
5. Tax saving on home loans under Section 24 and Section 80C co-owned house debts on interest amount and principal payment: If the home loan is taken jointly with another individual, both co-owners can claim deductions on the interest and principal payments in proportion to their share in the loan.
6. Deduction for stamp duty and registration charges under Section 80C: Under Section 80C, borrowers can claim a deduction for the stamp duty and registration charges paid during the purchase of a house property. This deduction is within the overall limit of Rs. 1.5 lakh under Section 80C.

WHAT ARE THE ELIGIBILITY REQUIREMENTS FOR TAX DEDUCTIONS ON HOME LOANS?

You can avail of the tax benefits associated with home loans and effectively reduce your taxable income by meeting the following eligibility requirements:

1. Home Loan Purpose: You must have taken the loan for purchasing or constructing a residential property and for renovations or repairs.
2. Property Ownership: You must have owned the property for which the loan is taken. Any co-owners of the property can also claim deductions in proportion to their share of the loan.
3. Completion of Construction: The construction for which the loan was taken should be completed within five years from the end of the financial year for properties under construction. You cannot claim tax deductions if the construction is not completed within this timeframe.
4. Loan Repayment: The borrower must be actively repaying the home loan. The principal and interest payments made during the financial year can be claimed for tax deductions.
5. Proper Documentation: It is important to maintain all relevant documents related to the home loan, including loan statements, interest certificates, possession certificates, and proof of construction or purchase. These documents may be required as supporting evidence while claiming tax deductions.

HOW TO CLAIM TAX BENEFITS ON HOME LOANS?

To claim tax benefits on home loans, follow these steps:

1. Keep the necessary documents ready: Ensure that you have all the required documents related to your Home Loan Process, such as loan statements, interest certificates, and possession certificates.
2. Calculate the principal and interest amounts: Determine the amount of principal repayment and interest paid during the financial year.
3. File your income tax return: Include the details of your home loan, such as principal repayment and interest paid, in the appropriate sections while filing your income tax return.
4. Submit supporting documents: You should submit the necessary documents as proof of the home loan and the deductions claimed.

HOW DO I CALCULATE TAX BENEFITS ON A HOME LOAN?

You can calculate the tax benefits that you can avail of on your home loan by following these steps:

1. Determine the total interest paid on the home loan during the financial year.
2. Calculate the principal repayment made during the financial year.
3. Identify the maximum deduction limits allowed under various sections, such as Section 24 and Section 80C.
4. Subtract the eligible deductions from your total taxable income.

WRAPPING UP:

Home loans offer several tax benefits that will help you to save a significant amount of money. You can effectively reduce their taxable income by understanding the available deductions under Section 80C, Section 24, and other relevant provisions of the Income Tax Act, 1961. You can consider different banks that offer easy home loan processes like ICICI Bank. Find attractive options with competitive interest rates and flexible repayment terms. By opting for a home loan from a reliable lender, you can not only fulfil your homeownership dreams but also avail yourself of maximum tax benefits.