How housing finance helps you with tax planning
Several tax deductions are available on your home loan, which can help you reduce your tax liability.
Mr. Singh purchased a house with the help of a loan to claim tax benefits on it, Mr. Singh needs to do proper home loan tax planning. Here’s a look at what he should consider:
A home loan repayment has two components, the principal and interest both. If utilised well, both parts help in taxes planning.
Deductions under section 80C: The principal amount you pay on your home loan is eligible for deduction under section 80C of the Income Tax act. The maximum limit of this deduction is Rs 1.5 lakh in a financial year.
Section 80C also consists of other deductions what you need to remember is, the maximum deduction available under all these heads is Rs 1.5 lakh. Also, to avail deduction under section 80C, you cannot sell the property within five years of possession; otherwise, the tax benefits are reversed.
The amount paid for registration and stamp duty is also eligible for deduction under section 80C.
Deduction under Section 24: If it is a self-occupied property, you can avail a deduction of up to Rs 2 lakh on the interest paid. For properties that are let out there is no upper limit on the interest that can be claimed as deduction. However, remember that there is a condition to avail this deduction. The construction of the property needs to be completed with a period of 5 years of taking the loan. Otherwise the exemption you can claim is a maximum of Rs 30,000.
Deduction under section 80EE and 80EEA: There are additional deductions one can avail under section 80EE and 80EEA.
Under Section 80 EE, you can claim an additional deduction of Rs 50,000 on the interest paid over and above Rs 2 lakh. To avail this deduction, the value of the house should be Rs 50 lakh or less. The amount of loan taken for the house should be Rs 35 lakh or less. To avail this deduction an individual cannot own any property on the day the loan is sanctioned.
In this budget, it was announced that homebuyers could avail an additional deduction of Rs 1.5 lakh on the interest paid under section 80EEA. However, this is available only for houses that fall under the affordable category. The stamp duty of the house property should be Rs 45 lakh or less.
There are also certain conditions concerning the carpet area of the said house property. The carpet area should not be more than 60 sq mt or 650 sq ft in major cities like Mumbai, Bengaluru, Delhi NCR, Hyderabad, Kolkata and Chennai. In other cities or towns, the carpet area should not be more than 90 sq meter or 968 sq ft. Home loans taken up to 31 March 2020 is eligible for this deduction.
Avail more deductions with a joint home loan: You can apply for a home loan jointly with a co-owner who is a spouse, parents or sibling. This is helpful if your interest outgo is more than Rs 2 lakh, as each joint owner and borrower can claim up to Rs 2 lakh. Each co-owner can also claim deduction on principal repayment under section 80C up to Rs 1.5 lakh. So as a family, you can claim a more significant tax benefit for your loan.
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