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Owning an own home is an overwhelmingly emotional decision.
Many people who are short of saved money for buying a home can avail of home loans to realize their dreams.
Home loan interest rates are on the lower side as it’s a secured debt. Based on your housing loan eligibility criteria, it is possible to avail of a significant amount.
Housing loan eligibility criteria and documents required for home loans are easy to meet and furnish. They are mentioned on a lender’s website, and one can easily prepare for it.
While it provides you with a large amount to move into or build a home, you can also enjoy tax benefits when you avail of a home loan. Yes, that’s true!
It is available as per different sections of the Income Tax Act of 1961.
On that note, it would be good to know about key tax benefits while you avail of a home loan in this post!
- Deduction of interest paid on housing loan
The repayment of a home loan is made per month over a tenor when you pay home loan EMI. Your home loan EMI comprises a principal and interest portion. The total interest that you pay in a fiscal year is entitled to deduction during tax liability computation. You may be able to enjoy a maximum deduction of Rs.2 lakh if your property is self-occupied. If it is a residential property with a home loan and let out, there is no specified limit. If a residential property is under construction, you can ask for such a deduction. It is claimable from the completion year of the construction.
- Deduction of interest for under construction property
You can also claim some interest deduction during the pre-construction phase. It is if your residential property is under construction. But to claim such tax benefits, the construction of the property must be completed within 5 years of availing of the loan.
- Deduction under principal component deduction
Home loan borrowers are also entitled to get a deduction to a yearly limit of up to Rs.1.5 lakh on annual principal repayment. This facility is available under section 80C of the Income Tax Act. The income tax benefit on a housing loan is available over and above the deducted interest. It can be claimed with the condition that the property must not be sold within 5 years of acquisition.
- Deductions on a joint home loan
Many people don’t have the home loan eligibility to avail it individually. Hence, they do that jointly. If you have a home loan with a co-applicant, section 80C of the Income Tax Act lets you enjoy deductions on the principal and interest component. Each home loan borrower is entitled to enjoy deductions of up to Rs.2 lakh. It is available on interest payment. And on principal repayment, a deduction of up to Rs.1.5 lakh is allowed.
- Deductions on stamp duty and registration fees
Home loan customers can also enjoy a deduction on registration and stamp duty paid. It is during the acquisition period of the residential property with a maximum cap of Rs.1.5 lakh. This provision is made under section 80C of the Income Tax Act. You can claim such deductions only for the year the payment gets made.
- Extra deductions for first-time homebuyers
If you are a first-time homebuyer, you can also enjoy a yearly claim on payment of interest of up to Rs.50,000. This facility is made available as per section 80EE. But the condition is that the home loan amount should be under Rs.35 lakh. Also, the value of the property should not be more than Rs.50 lakh.
An annual deduction of up to Rs.1.5 lakh is also available for first-time homebuyers if purchased property’s value is well within Rs.45 lakh.
For that, an individual should avail of a home loan between 1 April 2019 and 31st March 2020.
Nonetheless, this facility is unavailable for individuals looking for deductions under section 80EE.
To start enjoying home loan tax benefit, you should ensure that a residential property you have financed is in your name.
When you want to claim home loan tax benefits as a joint borrower, you also need to ensure being one of the co-owners of the property.
It is possible to calculate an exact tax deduction using an income tax calculator to proceed with the claim.
You are now well aware of tax benefits when you get a home loan. Based on your candidature and other factors, you can begin availing of tax benefits.