Tax Benefits on Home Loan

Only co-owners can avail tax benefits of a home loan | Value Research

Every year, as the tax season beckons, people look for ways to reduce their tax liabilities. And, if you are nursing a home loan, you can enjoy tax benefits. Read on to know more about it. 

Buying a home is probably one of the biggest and most important financial decisions you may take in your life. If you want to apply for a home loan, you must plan your finances well to repay the amount easily throughout the loan tenure. As such, financial planning for a home loan would mean arranging funds for EMI payments and taking advantage of the home loan-related tax benefits. 

As a home loan borrower, you can get several tax benefits under different sections of the Indian Income Tax Act. Let us look at some of the deductions you can avail of and lower your tax outgo in a financial year. 

Tax deduction on repaying the principal amount

A significant part of the EMI (Equated Monthly Instalment) goes towards repayment of the principal amount, especially during the latter half of the loan tenure. The principal amount you repay every year is eligible for deduction from your overall tax liabilities in a financial year. 

You can claim a deduction of up to Rs. 1.5 lakhs in a year under Section 80C of the Indian Income Tax Act. However, to claim this benefit, you must meet certain specific requirements:

 

  • You must not sell the property for at least five years from the registration date.
  • If you sell the property within five years, the tax benefits you may have availed earlier will be reversed and added to your income as ‘gains from a property sale,’ and it will be a taxable income. 

Tax deduction on repaying the home loan interest amount

The home loan EMI involves two components. One the principal amount, i.e., the actual amount you borrow from the lender and the interest component. During the initial few years of repayment, a significant portion of the EMI goes towards the repayment of the interest component. Hence, it is essential to compare the home loan interest rates and choose the best offer so that the EMI is affordable. 

You can avail of a tax deduction on the repayment of the interest under Section 24 of the Indian Income Tax Act. The maximum tax deduction you can claim in a financial year is Rs. 2 lakhs. 

The tax deduction on home loan interest payment is also available on loan availed for home construction. However, you can claim the deduction only after the home construction is completed. 

Tax deduction on property registration charges and stamp duty

When you buy a home, there are certain legal charges that you must incur, like the registration charges and stamp duty. The government of India levies these charges, and it is an inherent part of the home buying process. 

While these charges can be a significant amount, they are eligible for tax benefit. This means you can include these charges in your tax deductibles and reduce your tax liability. The tax benefits for stamp duty and registration fees are covered under Section 80C of the IT Act, and it is inclusive of the 1.5 lakhs limit. And, you can claim this tax benefit only once in the year of registration. 

Other home loan-related tax benefits

Apart from the tax benefits available on the home loan principal amount, interest component, and stamp duty, you can get an additional deduction of Rs. 50,000 under Section 80EEE of the IT Act. However, to avail of this deduction, you must meet the following requirements:

  • The value of the property you buy should not be more than Rs. 50 lakhs
  • The value of the home loan you avail must not be more than Rs. 35 lakhs
  • You must have availed of the loan between April 2016 to March 2017. 

 

 

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