Home Loans are not just about availing and repaying a debt meant to finance a home purchase- these useful instruments are also ways to save up on income tax. With the tax season nearing, a handy guide to implement some tax saving hacks is more than necessary for Home Loan applicants. So, without further ado, let us get to exploring these useful tips to know how to save tax on Home Loan and get benefited:
Benefits on Principal Repayment
The Income Tax Act of India allows Home Loan borrowers to save up on the repayment of the amount borrowed- under Section 80C, this deduction can be claimed on the principal repayment.
The benefits are capped at Rs 1.5 lakhs and are inclusive of several other things such as contribution towards Public Provident Funds (PPFs), equity-oriented mutual funds, National Savings Certificates as well as fixed deposits.
Tax benefits can be availed from the year when repayment begins and are valid for self-occupied properties whose construction has reached completion.
Benefits on Repayment of the Interest
Home Loans availed to construct or purchase a residential property are eligible for tax benefits on the repayment of the interest component under Section 24(b).
The benefits under this section are capped at Rs 2 lakhs per annum in case of self-occupied properties. For properties that have been rented out, there is no cap on the benefits and the entire interest amount can be claimed in such cases.
This benefit can be claimed only when the construction or purchase of the house is completed within 5 years of availing the Home Loan. For properties that do not satisfy this condition, Rs 30,000 is the maximum amount that can be claimed on interest repayment.
Benefits for First-Time Home Buyers
Individuals who are availing loans to buy their first home are eligible to enjoy additional benefits of Rs 50,000 on the interest repayment under Section 80EE of the Income Tax Act. The first-time home buyers need to make sure that the value of their property does not exceed Rs 50 lakhs and the Home Loan availed is not more than Rs 35 lakhs to claim this benefit.
The deductions under this particular section can be claimed until repayment is complete and are valid for both self-occupied and non-self-occupied properties.
All the benefits mentioned above are applicable in case of joint Home Loans as well, wherein the other party is a co-borrower/co-owner.
So, this financial year, make sure to claim the benefits mentioned above and save up significantly on your tax liabilities.
Aman Khanna is an experienced financial advisor who is well known for his ability to foretell the market trends as well as for his financial astuteness. He has an MBA in finance from Toronto University as well as years of experience delivering seminars on sound financial practices and debt management.