Your dream of owning a home is made easier as we, at Indiabulls Home Loans, provide affordable and hassle-free loans. In addition to enabling you to buy your home, such loans offer several tax benefits under section 80C of the Income Tax Act. Here are the six primary home loan tax benefits:
1. Interest paid on the borrowed amount
You may avail of a loan to purchase a home or construct one. The construction must be completed within five years from the financial year in which the loan is availed. The Equated Monthly Installments (EMIs) of the home loan comprise two components – principal repayment and interest. Under section 24 of the Income Tax Act, you may claim a tax deduction of up to INR 2 lakh per annum on the interest paid on your housing loan. However, if you let out the property on rent, there is no cap on the tax benefit available for the interest paid during the financial year.
2. Pre-construction period interest payment
If you apply for a home loan for an under-construction property, you still have to pay the EMIs. In this situation, the tax benefit on the interest paid during the financial year on an under-construction property is not available. However, the legal guidelines stipulate that such pre-construction interest payment may be deducted from your income in five installments. These installments commence from the completion of the construction or when you acquire the property.
3. Principal repayment
Tax benefits on the principal payment are available under section 80C of the Income Tax Act. The maximum deduction available during a financial year is capped at INR 1.5 lakh. You need to remember that you are eligible for such deductions only if you do not sell the property within five years of procuring possession. If you sell the property, all deductions that you may have claimed earlier are added to your income and taxed at the prevailing tax rates.
4. Stamp duty and registration charges
You may also claim tax deduction towards the stamp duty and registration charges under section 80C of the Income Tax Act. However, such deductions must adhere to the overall limit of INR 1.5 lakh per annum as provisioned under this section. It is important to bear in mind that deduction for stamp duty and registration charges is available only in the financial year when you actually incur these expenses.
5. First-time buyers
Section 80EE of the Income Tax Act allows an additional deduction of INR 50,000 if you are a first-time homebuyer. However, the value of the home must not exceed INR 50 lakh. Additionally, you must not apply for a house loan for an amount exceeding INR 35 lakh to claim this additional tax benefit. Moreover, the property must be purchased between April 1, 2016, and March 31, 2017, and you must not own any other property when the loan is sanctioned.
6. Joint home loan benefits
If you have availed the housing loan jointly with your spouse or another family member, tax benefits are available to all the applicants. This means that section 80C and section 24 deductions for principal repayment and interest, respectively are available for the joint applicants. However, the maximum limits of INR 2 lakh for interest payment and INR 1.5 lakh for principal repayment must be adhered to. Moreover, the joint applicants must also be co-owners on the property to claim the tax benefits. Housing loans are a boon to individuals who want to acquire their own homes. However, it is recommended you determine your monthly expense using a home loan EMI Calculator to ensure you do not take on a liability that may result in financial distress.