Buying your first home loan comes with multiple tax benefits, some of which you might not even be aware of! These deductions not only reduce your tax outgo but also help in managing your cash flow better. Using a good home loan benefit calculator helps in determining which tax deductions are available to you as a home loan borrower.
Here are some of the major tax benefits you can claim on home loans:
Deduction on interest: If you are paying EMIs – a fixed payment amount made by a borrower to a lender at a specified date of each calendar month – for a home loan taken to buy a house, the interest component in the EMI can be claimed as deduction. You must be both an owner and a co-borrower to claim tax benefits. This deduction can be claimed in the starting of the year in which the construction of the house is completed. If your house is rented, the entire interest for the year can be claimed as deduction.
Additionally, it’s important to note that even if you have missed a few EMIs during a financial year, you are still eligible to claim deduction on the interest part of the EMI for the entire year.
Deduction on principal repayment: The component of your EMI which goes towards the principal is eligible to be claimed under Section 80C of the Income Tax Act. A maximum of Rs. 1.5 lakh can be claimed as deduction under Section 80C.
Deduction on processing fee: There’s a list of expenses that you might have thought were miscellaneous but are still connected to your home loan. Most taxpayers are unaware that charges related to their home loans qualify for tax deduction. As per the law, these charges are considered as interest and therefore deductions on the same can be claimed. Did you know that the fee you paid on your loan is eligible for a tax deduction under Section 24?
Loans from relatives and friends: You can also claim a deduction under Section 24 for interest repayment on loans taken from a friend or relative, provided the purchase of the loan is for the construction of a property. You can also claim a deduction on money borrowed from someone, also for the purpose of property reconstruction or repair.
Now that you’ve been made newly aware of the various tax benefits available to you, here comes the hard part! How can you determine which of these deductions will be applicable to you? Use a tax benefit calculator to help you determine the tax saving opportunities you are eligible for. A good tax saving calculator will be invaluable in helping you calculate the benefit that you can claim when buying a home. Also read Claiming tax benefits from home loans
Buying a home loan can be a nerve-wracking process, but it doesn’t have to be! As the time to submit proofs of tax deduction documents comes closer, knowing the details behind the tax rules can you help you claim all of the deductions you are eligible for.