A dream for many, buying and owning a home is a common goal people work towards, the world over. There
Benefit on payment of interest
You can apply for a home loan for the purchase or construction of a new house. In this case, the construction must be completed within five years from the end of the financial year in which the loan was taken. Your housing loan’s EMI has two components – the principal repayment and the interest repayment. The interest amount can be claimed as a deduction from your income up to a maximum of Rs 2 lakh under Section 24 of the Indian Income Tax Act.
If your property is self-occupied and the construction has been completed within five years, you can claim home loan tax benefit, i.e. an exemption up to Rs 2 lakh. However, if the construction time exceeds five years, the deductible amount drops to Rs 30,000. On the other hand, if you are renting out the property, there is no cap on how much you can claim as a home loan tax benefit, regardless of the property’s completion status.
Benefit on payment of interest during the pre-construction period
In case you have purchased a property still under construction and have begun paying the EMIs on your home loan, your eligibility to claim home loan tax benefits will begin only when construction is completed. Now you may think you will not be able to enjoy any home loan tax benefits during the period between borrowing the loan and construction completion. But let’s take a closer look. The Indian Income Tax Act has a provision under which you can claim deductions for such interest as well. Called the “pre-construction interest, you are allowed to make deductions in five equal instalments beginning from the year in which you bought the property or construction is completed. Here, the maximum eligibility is capped at Rs 2 lakh. You can also read our blog on what is pre-launch for more information.
Benefit on payment of principal
Section 80C of the Income Tax Act allows you a home loan tax benefit of Rs 1.5 lakh as a deduction. This deduction can be availed only upon complete construction of your purchased property. However, this benefit will be reversed if you sell your home within five years of possession. Your claimed amount will be added back to your bank account in the same year that you made the sale. Section 80C also gives homeowners the opportunity to claim deductions on the amount paid for various taxes and duties. This is regardless of whether you have borrowed a home loan or not. However, you can claim this deduction must stay within an overall limit of Rs 1.5 lakh and can only be claimed in the same year these expenses are incurred.
Benefit for first time home buyers
First time homebuyers can also avail multiple home loan tax benefits up to Rs 50,000 under Section 80EE. This is over and above the deductions you can claim for principal and the interest under Sections 80C and 24. Bear in mind, however, that your property’s value must be less than Rs 50 lakh and the total home loan value must be under Rs 35 lakh. Additionally, the homeowner can only own one property and not multiple.
Benefit for co-borrowers and joint owners
For further home loan tax benefits, you can opt for applying for a joint home loan with your spouse, relative or friend. In such cases, you can claim deductions up to Rs 1.5 lakh on the principal amount and Rs 2 lakh on the interest. To claim these deductions, both co-owners must also be co-owners of the property. So if you have been considering a home loan, be sure to read up on these home loan tax benefits the various financing options available to you so you can maximise your savings. Once you have your finances sorted, head over to Casagrand to find the home of your dreams