Homeownership is a dream come true for many people today. Realising this, the government allows borrowers to get tax benefits and deductions under the Income-tax Act, 1969. You can avail of tax saving on home loan through the many benefits provided.
The tax benefits on a home loan
If you are making EMI payments for your mortgage, they consist of two parts:
Section 24 of the ITA permits deduction of up to Rs 2 lakh from your total income for the interest component of the EMI you paid during the year.
Section 80C permits a deduction for the principal component of the EMI paid throughout the year. Up to Rs 1.5 lakh can be claimed as the maximum amount.
Note: In order to qualify for tax savings on a home loan, the home must not be sold within five years of occupancy. Or else, the earlier deduction you took will be added back to your income in the year of the sale.
Deduction for registration fees and stamp duty
Under Section 80C, a deduction for stamp duty and registration fees can also be made in addition to the deduction for principal repayment, but only up to a total of Rs 1.5 lakh.
However, it can only be claimed in the year that these costs are incurred.
Additional deduction under Section 80EE
The following prerequisites must be satisfied to claim this deduction:
- The property’s stamp value is not more than Rs 45 lakh.
- The loan was approved between April 1, 2019, and March 31, 2022.
- The person is a first-time home buyer and does not own any other homes as of the loan sanction date.
Deduction for a joint home loan
You can take out a larger loan and benefit from the principal and interest deduction on the tax saving on the home loan separately if you and your partner have significant income tax expenses. The couple can thus deduct a total of Rs 3 lakh (1.5 lakh + 1.5 lakh) from their income under Section 80C for principal repayment and Rs 4 lakh (2 lakh + 2 lakh) for interest payments under Section 24b. For instance, a larger home loan of Rs. 60 lakh with a 15-year term could provide them with the ideal balance of greater tax savings and quicker repayment.
Note: They must also be joint owners of the property leased to qualify for this deduction. Therefore, a loan taken out jointly with your family will allow you to deduct more from your taxes.
Additional savings on a modest home purchase
If you purchased the home under the affordable housing category, section 80 EEA allows an extra deduction of Rs. 1.5 lakh as tax savings on the home loan.
When applying for a loan, taking care of home loan documents, interest rate charges, processing fees, etc., is a must. But so is understanding the tax benefits to avail. An important point to remember is that the benefits and deductions are subject to change, and you must make sure you stay updated.
To sum up
Home loans offer choices for buying fully constructed homes, properties still under development, previously owned homes, etc. If you’re considering applying for a house loan, get in touch with an expert to see how you can avail of tax saving on a home loan.