A home loan can be one of the biggest investments you make in your lifetime, and it also offers several tax benefits. The Indian government has introduced various tax benefits for homebuyers to encourage homeownership and improve the country’s real estate sector.
It is essential to keep all the relevant documents such as home loan statements, interest certificates, and loan amortisation schedules to claim the deductions accurately. One such benefit is the housing loan tax benefit, which allows borrowers to claim tax deductions on their home loan interest and principal payments. In this article, we will discuss the different types of tax benefits available for home loans in India and how they can help reduce your tax liability.
Types of Home Loan Tax Benefits
- Deduction on Home Loan Interest
Under section 24(b) of the Income Tax Act, borrowers can claim a deduction of up to Rs. 2 lakh on the interest paid on their home loan. This deduction is available for self-occupied properties and rented properties.
In case the property is not self-occupied, there is no upper limit on the amount of deduction that can be claimed. However, the actual interest paid or Rs. 2 lakh, whichever is lower, can be claimed as a deduction. This deduction is available for the entire loan tenure, and the interest paid can be claimed as a deduction in the same financial year in which it was paid.
- Deduction on Home Loan Principal Repayment
Under section 80C of the Income Tax Act, borrowers can claim a deduction of up to Rs. 1.5 lakh on the principal repayment made towards their home loan. This deduction is available only for self-occupied properties. The deduction is available on the principal repayment made towards the home loan, including any prepayments made during the year. However, the deduction cannot be claimed for any penalties or charges paid for prepaying the loan.
- Deduction on Stamp Duty and Registration Charges
In addition to the above tax benefits, borrowers can also claim a deduction on the stamp duty and registration charges paid at the time of property purchase. This deduction is available under section 80C of the Income Tax Act and is subject to a maximum limit of Rs. 1.5 lakh.
However, this deduction can be claimed only in the year in which the payment was made. If the payment was made in instalments, the deduction can be claimed in the same financial year in which the instalment was paid.
- Joint Home Loan Tax Benefits
If you have taken a joint home loan with a co-borrower, both you and the co-borrower can claim tax deductions on the interest and principal repayment made towards the home loan.
In the case of a joint home loan, the co-borrower can also claim the deduction on stamp duty and registration charges paid, provided the payment was made from their own funds.
- Deduction for First-Time Homebuyers
First-time homebuyers can also claim an additional deduction of up to Rs. 50,000 on the interest paid on their home loan under section 80EEA of the Income Tax Act. To be eligible for this deduction, the value of the property purchased should be up to Rs. 45 lakh, and the loan should be sanctioned between 1st April 2019 and 31st March 2021.
How to Claim Home Loan Tax Benefits?
To claim the tax benefits on your home loan, you need to file your income tax return and declare the interest and principal repayment made towards your home loan.
While filing your income tax return, you can claim the deduction on the home loan interest and principal repayment made during the financial year. You can also claim the deduction on stamp duty and registration charges paid during the year.
Benefits of Using an Income Tax Calculator
Calculating the tax benefits of a home loan can be a daunting task, especially for those who are not well-versed in home finance, tax laws and regulations. However, with the help of an income tax calculator, you can easily calculate the amount of tax benefit you are eligible for on your home loan.
To sum it up, if you are planning to purchase a house, a home loan can be an effective way to make your dream a reality. However, it is crucial to understand the tax implications of a home loan and the tax benefits available to you. By using an income tax calculator and consulting with a financial expert, you can make an informed decision when applying for a home loan. Remember to keep all necessary documents, including loan agreements and tax-related documents, safe and accessible for future reference.