With the introduction of benefits to home buyers, many people are now able to achieve their dreams of owning a home. One major advantage of availing home loans is that you are entitled to enjoy substantial tax rebates that greatly lower the taxes. If you’ve already taken a home loan, you can claim the home loan tax benefits.
You can get tax benefits through wise investments conducted over the years. Tax benefit on the home loans is a long-term investment that’ll grant you tax exemption for an extended period. Therefore, if you desire to be a homeowner, getting a home loan will grant you multiple perks. To learn all the details about home loan tax benefits and how to get them, continue reading this guide.
What’s a Home Loan?
This is a loan provided by the lender to help in purchasing a house. Depending on the borrower’s eligibility, a lender can pay 75 to 90 percent of the total cost of the home bought. After making the down payments, the lender then disburses the amount in full or in parts, depending on the construction stage of the property. If the loan amount is disbursed in parts, the lending institution will charge only the interest on the amount disbursed. In case of full disbursement, the EMI payments, which comprise the principal amount and interest, will start instantly.
Home Loan Tax Benefits
- Tax Deductions on Principal Amount
Any loan repayment comprises two components, which are principal and interest amount. Section 80C of the Income Tax Act 1961 states that a person can get a Tax Exemption on the Home Loan on the repaid amount if the home is self-occupied.
In cases where a second house is bought using the home loan and is occupied by the buyer or rented out, a tax benefit of up to Rs 1.5 lakh is offered. Moreover, you can get the tax benefits on personal loan only once on the registration fees and stamp duty.
- Tax Deductions on Interest Amount
According to section 24 of the Income Tax Act, you’re eligible for a home loan interest deduction. If you occupy the property yourself, you can claim a home loan tax exemption on an interest amount of not more than Rs 2 lakh. Additionally, if you own another property, the total tax to be deducted from both homes should be Rs 2 lakh.
- Tax Deductions on the Home Interest Rates in the Pre-Construction Stage
Under Section 24B, one can get a home interest tax benefit on the interest paid in the pre-construction phase. Applying for the home loan when the property is being constructed and has produced interest at this time, you can get a deduction on the interest amounts in five installments.
- Tax Deductions in Joint Home Loan
If you apply for home loans with your partner, both of you can get a tax deduction on the principal amount of not more than Rs 1.5 lakh for each person and the interest amount of Rs 2 lakh for each person.
Eligibility Criteria for a Home Loan Deduction
- Any person purchasing a new home with a home loan is allowed to claim the tax rebates under Sections 80C, 24, 80EEA, and 80EE of the Income Tax Act. If the borrowers get a joint loan, they are co-owners of the property and can claim the tax rebates on the housing credit.
- A property must be constructed before claiming the tax deductions. If it’s not built, it should be finished within five years of availing a loan to claim the maximum deductions. In the case of home loan interest deductions, you need to get a certificate from the financial institution.
- You must be a first-time house buyer to get an additional tax rebate of Rs 1.5 lakh under Section 80 EEA. What’s more, the stamp value of the property will not go over Rs 45 lakh.
What to Consider While Taking a Home Loan
Just like any other loan, there are some things you need to keep in mind before getting a home loan. This way, you will be able to make an informed decision and also know if you are on the right track. Getting a loan isn’t something to decide in a rush. You need to consider all the good and the bad.
When taking a home loan, these are some things to keep in mind:
- Compare the interest rates offered by different private lenders to find the best rate.
- Check your capacity to repay the loan.
- If your credit score is good, about 750 or more, you can negotiate with the lender on rates.
- Know the overall cost of the loan, including the processing fees and any other additional charges.
- Make sure the property is not disputed.
- Calculate the EMI payments beforehand.
To Sum Up
Though a home loan can be costly, using it correctly can lessen your financial burdens and allow you to maximize your tax savings. Apart from home loans, there are other strategies you can use to lower the tax liability while still making savings. This will eventually improve your total net worth. Many of these instruments are used to make investments that can lower costs and increase profits.
