When it comes to buying a home, there is a lot of financial planning that is done prior to the purchase. Most of us save money and accumulate funds over time required for buying a home or opt for a home loan. Getting a home loan has become easier and hassle-free and it also offers tax saving benefits. You can enjoy these benefits under several instances, whether you are a first time home buyer or you have your house rented out. The government has these tax benefits in place to encourage home ownership in India and to boost the sluggish real estate market. Let’s take a look at a few tax benefits on home loans and then move on to how you can claim these benefits.
- 1 Tax deduction for principal paid on housing loans
- 2 Tax deduction for interest paid on housing loans
- 3 Tax deduction for first time home buyers
- 4 Tax deduction for joint home loan
- 5 Tax deduction for interest paid during pre-construction period
- 6 Tax deduction for stamp duty and registration charges
- 7 Documents that you will need to claim these tax benefits
Tax deduction for principal paid on housing loans
The repayment of the housing loan is usually paid back in EMIs (Equated Monthly Installments) which consists of two components-the principal and interest component. The principal portion of the EMI paid can be claimed as a deduction under Section 80C. The maximum amount that can be claimed is up to 1.5 Lakhs. However, in order to claim this deduction, the house shouldn’t be sold within 5 years of possession.
Tax deduction for interest paid on housing loans
This interest component can be claimed as a deduction under Section 24 of the Income Tax Act. For the financial year 2018-2019, the maximum amount permissible is Rs. 2 lakh and for a property that is rented out, there is no upper limit for claiming interest. Keep in mind that the loan that’s taken for the purchase or construction of a property must be completed within 5 years from the end of the financial year since the loan was borrowed.
Tax deduction for first time home buyers
In an effort to encourage people to buy a property, the Indian government has created a provision for availing additional tax deduction for the first time home buyers. A maximum tax exemption of Rs. 50,000 is applicable under Section 80EE. In order to claim this deduction, the loan amount should be less than Rs. 35 lakhs and the value of the property must not exceed Rs. 50 lakhs. However, you can only claim this benefit if the loan was sanctioned during or after the financial year 2016 to 2017.
Tax deduction for joint home loan
Co-owning a property with a joint home loan has a double tax benefit bonanza as each of the loan borrowers can claim a deduction of up to Rs. 2 lakhs under Section 24. However, the total deduction claimed combinedly should not exceed the total interest paid for that loan.
In addition to the interest component, they can also claim a deduction on repayment of the principal amount of up to Rs 1.5 Lakhs each under Section 80C. In summary, joint home loan applicants can claim combinedly up to Rs 3 Lakhs under Section 80C and up to Rs 4 Lakhs under Section 24.
Hence, co-owning a property and taking a joint home loan can reduce the tax burden of the whole family as you get to claim larger tax exemptions.
Tax deduction for interest paid during pre-construction period
Let’s assume you have bought a house that’s under construction and you’ve applied for a home loan against it. But you’ve been paying the interest as EMIs. In this case, you’re eligible to claim tax benefits only after the house construction is completed. Once the construction is completed, you can claim tax deduction under Section 24 for the interest paid during the construction stage, as pre-construction interest. The amount claimed as pre-construction interest can be claimed in five equal installments starting from the financial year during which the construction is completed.
Tax deduction for stamp duty and registration charges
In addition to claiming deductions for interest paid and principal repayment, you can also avail tax exemption for the stamp duty and registration charges that were incurred while purchasing the property. Section 80C allows an overall limit of Rs. 1.5 lakhs. Keep in mind that this benefit can be claimed only during the year in which these expenses were incurred.
Documents that you will need to claim these tax benefits
These tax benefits need to be claimed during the tax filing return in the respective financial year. Make sure you inform your employer about the same as they will adjust your TDS deductions accordingly. However, you will need a few documents to help you claim these benefits.
- Ownership details of the house
- A document that proves the completion of construction or the date of the purchase
- A proof receipt of municipal taxes that have been paid
- The loan certificate from the bank that has the interest and principal amount details
- A document that clearly states the homeowner or co-owners names
With all this in place, you can put an end to your financial worries and enjoy these tax benefits on home loans also. So why wait? Purchase your dream home and upgrade to a new address at Lancor today!