Home Loan Tax Benefits Under Indian Income Tax Rules
Purchasing a house is a huge financial leap and to many individuals, a home loan can bring such a dream true. The little-known fact among many borrowers is that there is a host of tax advantages to a home loan under the income tax act of 1961. This knowledge of the benefits can also guide you in better planning of your finances and will decrease your total tax liability.
In this paper we disaggregate the major benefits of home loans tax in easy and practice terms.
1. Deduction on Repayment of Principal - Section 80C.
Within Section 80C of the Income Tax Act, you will have an option to deduct Rs. 1.5 lakh per financial year on the amount you paid back on your home loan principal.
This amount is included in the total Rs. 1.5 lakh limit contained in Section 80C that covers investments such as PPF, ELSS, and life insurance premiums among others. The deduction is only made after the building of the property is finished.
It must be mentioned that the deduction made in the past can be reversed should you sell the property within five years since the financial year in which the possession was taken.
2. Deduction on Interest Payment Section 24(b)
The amount paid in interest on a mortgage is even more tax-deductible. In Section 24(b) you are allowed to deduct up to Rs. 2 lakh per annum of interest paid on a property used by you.
Where the property is under let out (rented), no upper limit exists technically, as to the number of interests deductible, but the loss which may be offset against other income is limited to Rs. 2 lakh per annum.
This deduction comes as a big saving to the taxable income in the early years of a mortgage loan when there is a higher interest element.
3. Further Deduction on First-Time Buyers- Section 80EE and 80EEA.
a. Special tax reliefs could be offered to first-time homeowners.
b. Section 80EE permits further deduction of home loan interest Rs. 50,000, under some conditions.
c. Section 80EEA provides another deduction of up to Rs. 1.5 lakh of any eligible affordable housing loan approved within given time limits.
These advantages are in addition to the Rs. 2 lakh ceiling of Section 24(b) and therefore are particularly welcome by new purchasers.
- Joint Home Loans Tax Benefits
When a home loan is co-borrowed the deductions are available individually by each co-borrower, as long as both parties are co-owners and make contributions toward the loan repayment.
Conclusion
Tax credit on home loans can help current your economic weight to a significant extent, as long as it is spent wisely. In case you are researching on structured loans and require understanding on the repayment strategy, KG Loan can assist you with the right details and responsible lending to enable you make a sound financial choice.
