HYDERABAD: Buying a home is an important financial milestone in one’s life, and deciding whether or not to avail of a home loan is a key part of the process.
While most of the salaried class opts for a home loan, keeping in view their financial needs, even businessmen and NRIs opt for a home loan many a time. Let’s find out how a home loan impacts one’s financial planning.
“Availing of a home loan will provide tax benefits to the homebuyer. It will offer dual benefits. On the one hand the principal component of the EMI paid during a year can be claimed as a deduction under Section 80C, up to a maximum limit of Rs 1.5 lakh, from one’s gross total income. On the other hand, the interest portion of the EMI can be claimed as a deduction against the income from house property, up to a maximum of Rs 2 lakh. Therefore, if one intends to buy a home, availing of a home loan is definitely a good option, as it helps bring down one’s taxable income,” said Archit Gupta, founder and CEO of ClearTax.
If one is a salaried individual and the employer is deducting the contribution towards EPF from the salary, and in case he/she has also availed of a home loan, most of the deduction under Section 80C would be covered by the EPF contribution and the principal component of the home loan repayment.
Hence, tax consultants and planners stress on availing of a home loan and planning to save tax only on the amount under 80C remaining after claiming the deduction of the home loan.
For instance, if one made a principal loan repayment of Rs 1.2 lakh in a year, one needs to make investments only for Rs 30,000 to be able to claim the benefit under 80C fully. Further, on account of the claim of the interest portion of loan repayment as a deduction, there are chances of an individual ending up with a loss from the house property. Such loss can be set off against income under any other head, which will further reduce your taxable income.
“However regarding the claim under 80C and Section 24, one needs to take care of certain points. Regarding the claim under 80C: a homebuyer should retain the property purchased for at least five years from the date of purchase, failing which the deduction one had claimed under Section 80C will be added to the income in the year in which the property is sold,” said Gupta.
Regarding deduction of interest repayment under Section 24, or a self-occupied house where one’s family resides, the interest one can claim as a deduction is limited to Rs 2 lakh. For a property which one has let out on rent, the entire interest one repays during the year can be claimed as a deduction.
The law restricts the loss that can be claimed from house property during a financial year to Rs 2 lakh.
The balance loss can be carried forward to subsequent assessment years.