Not only do home loans help you get one step closer to your dream of owning a home, they also offer several tax benefits when you use them wisely. As per various sections of the Income Tax Act, you can claim deductions on the interest and principal amount. So, it is important to understand the tax benefits before applying for a home loan.
Take a look at the tax benefits that you are eligible for when you take a housing loan.
Tax benefits under Section 24
The deductions under Section 24 of the Income Tax Act are determined by two factors: occupancy of the property and its status of completion. The deduction is calculated on the interest paid on the home loan. This is applicable when the home loan is used to finance purchase, construction, repair, renewal or reconstruction of a residential property.
For a self-occupied property that is completed within 5 years, you can claim up to Rs.2 lakh as the deduction. The deduction limit is reduced to Rs.30,000 if the construction continues beyond 5 years. If the property is not self-occupied, there is no limit on the deduction, regardless of whether the construction is complete or not.
As per Budget 2017, in case of a non-self-occupied property, the interest that you pay will be subtracted from the rent to arrive at the Income from House Property. If this number is negative, it will be termed as Loss from House Property. You can set off this loss against any other income, up to Rs.2 lakh. This section does not put any restrictions on selling the property while you are paying off the loan.
Tax benefits under section 80C
Under Section 80C of the Income Tax Act, the amount paid towards the principal is tax deductible up to Rs.1.5 lakh. But, you can make this claim only after the completion of construction of your property.
Also, if you sell the property before five years are up, then benefits owing to Section 80C, claimed over the last 5 years, will be treated as taxable income for the year in which the property is sold. In other words, the tax benefit will be reversed.
Tax benefits under Section 80EE
Utilise your first-time homebuyer status to get tax benefits under Section 80EE. You can claim tax-deduction on your interest payments up to Rs.50,000, every financial year, until you complete repaying your home loan. This benefit is irrespective of whether you have occupied the property or put it on lease. But you can avail the benefits and flexibility of this deduction only if the value of the property you own is less than Rs.50 lakh and the value of the home loan is less than Rs.35 lakh.
If you’re looking for a loan to buy your first home consider a lender liks Bajaj Finserv. Their Home Loan offers a 3-EMI holiday, part prepayment in no extra cost and quick approvals. These features make the loan perfect for first-time homebuyers.
Tax benefits when you apply for a joint loan
Tax benefits under the Income Tax Act in India are calculated for every individual and not for each property. So, to get greater tax benefits, apply for a joint loan with your spouse. You will each be able to claim tax benefits under sections of the Income Tax Act.
With better understanding of tax benefits, you will be able to make the most of your home loan. Remember to collect and submit all the relevant details when filing your taxes to get these benefits.