Tax benefits on home loan: How to save tax using your home loan
Under the provisions of the Income Tax Act of 1961, the government offers a number of house loan tax exemptions and deductions to encourage residents to make investments in property. All home loan borrowers should note and be aware of all the income tax rebates available on home loans, because doing so can enable you to significantly reduce your tax obligations.Here are tax benefits or income tax rebates on home loan every home loan borrower should know.
Deduction on repayment of principal amount of home loan
The EMI you pay is made up of two parts: principal repayment and interest paid. The major component of the EMI can be deducted under section 80C of the Income-tax Act of 1961 for self-occupied property. Section 80C deductions can also be claimed for stamp duty and registration fees paid when purchasing a home.
Note that if you have a second home that is empty or if your parents live in it, that second home will likewise be considered self-occupied. If you have rented out your second home, it will be referred to as 'Let out property.'
Also read: You will get a smaller home loan now as maximum loan eligibility drops by 20% in a year
Deduction on interest paid on a housing loan
A tax payer can deduct both the interest paid on a house loan as well as the principal amount that was repaid on the loan. In the case of self-occupied property, section 24 allows a deduction on the interest paid on a house loan up to a maximum of Rs 2 lakh in a given fiscal year. In the case of self-occupied property, interest payments above Rs 2 lakh would neither be carried forward nor offset against any other income head, such as capital gains, salary, etc.
If you own two homes and one of them is vacant or occupied by your parents, section 24 also covers the interest on any home loans acquired for the other home. The total tax deduction for home loans for two homes cannot exceed Rs. 2 lakhs in a fiscal year.
Additional deduction on buying an affordable house
An additional deduction on the interest paid on a home loan used to buy the house is available if you purchased it under the affordable housing category. A maximum of Rs 1.5 lakh can be deducted under section 80EEA in a fiscal year. It is allowed for a maximum of Rs 2 lakh in addition to the deduction under section 24. A tax payer can thus claim a deduction of up to Rs 3.5 lakh in a fiscal year in the case that they purchase a reasonably priced home.
Keep in mind that you cannot claim the same amount twice under two distinct sections. For instance, if you paid Rs. 1.4 lakh in interest on a home loan during the fiscal year, you can claim a deduction under Section 24 or Section 80EEA.
Deduction under section 80EE
For first-time homebuyers who took out mortgage loans, this deduction was reinstated in FY 2016–17. Taxpayers who took out a home loan in FY 2016–17 were eligible to claim an extra tax deduction under Section 80EE of up to Rs 50,000. Presently, under Section 24, a home loan borrower who pays interest on the loan may deduct that interest from his or her gross annual income up to a maximum of Rs 2 lakh. The deduction of Rs 50,000 introduced in Budget 2016 is in addition to the Rs 2 lakh limit.
To be eligible for this deduction, you must fulfil the following requirements:
a) Only residential house property will be eligible for the increased deduction for loan interest.
It is solely available to first-time homebuyers.
c) The annual maximum additional benefit is restricted to Rs. 50,000.
d) The house's worth cannot exceed Rs. 50 lakh when a loan is applied for.
e) The loan cannot be for more than Rs 35 lakh.
f) The loan has to be sanctioned between April 1, 2016 and March 31, 2017.
If you already taken out a home loan in FY 2016–17, however, you are still eligible to claim this deduction until the loan has been paid off in full. This tax benefit is not available for new home loans taken after April 1, 2017.
If the required criteria are met, the total amount of house loan-related deductions—Rs 2 lakh under Section 24, Rs 1.5 lakh under Sections 80C and 80EEA—can enable you get a maximum deduction of Rs 5 lakh. If you are intending to acquire a new home, you can structure your transaction so that your loan enables you to receive the maximum deduction.
How can I claim tax benefits under section 80EEA?
To qualify for benefits under section 80EEA, an individual must meet a number of requirements. These requirements are as follows:
a) The home loan must be obtained between April 1, 2019, and March 31, 2022;
b) The stamp duty on the home property cannot exceed Rs. 45 lakh;
c) The taxpayer cannot own any residential property as of the loan's sanction date; and d) The individual taxpayer may not be qualified for a deduction under the law's current Section 80EE.
Is home loan interest part of section 80C of the Income-tax Act?
No, section 80C of the Income-tax Act does not apply to interest paid on a mortgage. Principal repayments, however, are covered by section 80C. The principal amount of a home loan can be deducted up to Rs 1.5 lakh under section 80C.
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This story originally appeared on: India Times - Author:Faqs of Insurances
