Mortgages help to buy a new home as well as provide several tax benefits. The deductions you would be able to claim from taking a mortgage make the appeal of a home loan even stronger. There are several deductions which would not only reduce your tax outgo but also help in managing your cash flows better. Here are 5 deductions you could claim when taking a mortgage:
- Deductions on Interest:
The interest component of the EMI you pay towards the mortgage can be claimed as deduction. To claim tax benefits, you must be both an owner and a co-borrower in the loan. This deduction can be claimed depending on which year the house’ construction is completed. The payment of the EMI will result in a loss in the head “income from house property” and this loss can be adjusted against other heads of income in your income tax return including salary. This reduces the total taxable income and the tax you pay on it.
- Deduction on principal repayment:
The part of your EMI which goes towards principal can be claimed under Section 80C of the Income Tax Act. You can sum up the outgo of the year towards the principal and claim it but this claim has a deduction of Rs. 1.5 lakhs.
- Deduction on stamp duty and registration charges:
Payments made towards stamp duty and registration charges can also be claimed under Section 80C. These can only be claimed in the year which they were paid.
- Deduction on pre-construction interest:
The deduction on interest can be claimed in the year in which construction was completed, but you can start to claim pre-construction interest from the very same year. Sum up the entire pre-construction interest and claim it in five separate instalments. If the house is being used by you for residence, the deduction should not go above Rs. 2 lakhs.
- Deduction under Section 80EE:
This section is especially useful for first time home owners whose home value does not exceed Rs. 40 lakhs and the loan taken is under Rs. 25 lakhs. To be eligible for this deduction, the loan should be sanctioned between the 1st of April 2013 and the 31st of March 2014. The maximum deduction is set at Rs. 1 lakh and can be claimed between the years 2013-2014 and 2014-2015 spread over two years or in any one year.
While home loans are long term investments and require a great deal of thought before taking one, the tax benefits they provide help to ease the worry and also save money which can be used to repay the loan faster.