Under Section 24 of the Income Tax Act, you can avail the deduction on your home loan for payment of interest tax benefit. If you are paying your home loan on EMIs, the interest component of your EMIs can be claimed as deduction.
When it comes to buying real estate, it will be difficult to find a person who has not been tempted at least once during his lifetime for the same. And, this is being put very moderately as when you have to take a decision, you could be any of the millions-consumer willing to purchase for own usage, whether it is your first house or improving your property or maybe as an investment.
However, nowadays home loan being easily available makes it even better. With this, the goal of buying your dream home comes closer and becomes a reality. And, on top of it, if you get some tax benefits on purchasing the property, it’s just an icing on the cake. Yes, buying your dream home on a loan comes with plenty of tax benefits. It will not only help in reducing your tax outgo, but also manage your cash flows in a better way.
Here are the tax benefits you can claim when you avail a home loan:
Tax Benefits on Interest Paid
Under Section 24 of the Income Tax Act, you can avail the deduction on your home loan for payment of interest tax benefit. If you are paying your home loan on EMIs, the interest component of your EMIs can be claimed as deduction. But, for that, you must be both an owner as well as a co-borrower in the loan. You can claim the deduction starting the year in which the construction of your home is completed.
For example-If the construction of your home was completed on August 30, 2015, you can claim the interest deduction for the entire 12 months in FY 2015-2016. Every year, you can claim a maximum of Rs 2 lakh for a house that you use as your own residence. For a rented house, the entire interest for the year can be claimed as deduction.
Tax Benefits on Principal Repayment
The component of your home loan EMI which goes towards principal is eligible to be claimed under Section 80C of the Income Tax Act. You can claim a maximum deduction of Rs.1.5 lakh under Section 80C.
Nevertheless, there is a condition under which the repayment of the principal amount of your home loan is allowed. The deduction is possible only after the completion of the house with having the completion certificate of the same. An under-construction property is not a part of this section.
Deduction on Stamp Duty & Registration Charges
Apart from claiming the tax benefit on principal repayment, payment made towards stamp duty as well as registration charges is also allowed to be claimed under Section 80C of the Income Tax Act. However, both can only be claimed in the year in which they were paid.
Deduction on Pre-construction Interest
If deduction for interest can be claimed starting the financial year in which the construction is completed, a pre-construction interest can also be claimed by you from the same year. All you need to do is just add up the entire pre-construction interest and claim it in five uniform installments. Nevertheless, the amount should not be deducted beyond Rs.2 lakh when the house is being used by you for your own residence.
Section 80EE Income Tax Benefit
Under Section 80EE of the Income Tax Act, there will be a tax benefit to a first time house owner, owning a house of Rs. 50 lakh or less and has acquired the loan amount of less than or equal to Rs.35 lakh. The maximum limit is Rs.1.5 lakh that can be claimed under Section 80EE. But, there is a condition; the loan should be sanctioned between April 1, 2016 and March 31, 2017.
The author is Founder, Deal4Loans