One of the biggest advantages associated with Home Loans is the Home Loan tax benefits associated with these loans. Using these Home Loan tax benefits, borrowers can save a considerable amount of taxes each year.
Home Loan Tax Benefits
Home Loans are repaid in the form of EMIs. These EMIs constitute a principal component and an interest component. Borrowers can claim tax benefits on payments made towards both principal and interest repayment under various sections of the Income Tax Act. Apart from this, borrowers can also claim income tax benefits on stamp duty and registration charges as well as additional tax rebates. Let us understand how borrowers can claim these tax exemptions.
Tax Benefits Available Under Section 8OC of the Income Tax Act
Under Section 80C of the Income Tax Act, one can claim tax exemption on payments made towards principal repayment up to a maximum of Rs.1.5 Lakh each year. In the case of a joint Home Loan availed of by couples, both the husband and wife can claim tax rebates under this section separately.
Tax Benefits Available Under Section 24B of the Income Tax Act
Under Section 24B of the Income Tax Act, borrowers can claim tax exemptions on payments made towards repayment of the interest component of a housing loan up to a maximum of Rs.2 Lakh in each financial year. In the case of joint Home Loans, all co-borrowers can claim tax exemption separately under this category.
Tax Benefits Available Under Section 80EE of the Income Tax Act
Under this section of the Income Tax Act, first-time home borrowers can claim an additional tax benefit up to a maximum of Rs.50,000 provided they meet the following conditions:
The Home Loan borrower should not have any other property in their name The stamp value of the property must not exceed Rs.50 Lakh and the Home Loan value must not exceed Rs.50 Lakh.
Tax Benefits Available on Under-Construction Properties
Taxpayers can also claim tax benefits on under-construction properties. However, they must keep in mind that one can claim these Home Loan tax benefits only after the construction of the property is complete. Once the construction is complete, Home Loan borrowers can claim tax deductions on payments made toward interest repayment during the pre-construction phase in five equal instalments.
Borrowers must also know that if they sell the property within 5 years of taking possession, all income tax benefits that one could avail of will get reversed. Further, if a borrower buys a property and gives it out on rent, there is no limit to how much tax benefits one can claim under various sections of the ITA.
Now that we have some understanding of the various tax exemptions available under ITA, let us look at how one can claim these tax exemptions.
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How to Calculate Home Loan Tax Benefits and How to Avail of Them
If you are not sure how to calculate Home Loan tax benefits, it is best to use a Home Loan tax calculator. These handy tools are freely available online and one can use them to understand their tax obligation for each financial year.
Let us understand the process to claim tax benefits on Home Loans.
- Collect your Home Loan tax certificate from your lender.
- If you are employed, you can claim Home Loan tax benefits in two ways. First, you can claim tax benefits by submitting your tax certificate to your employer. Second, you can claim tax benefits while filing your taxes at the end of the year.
In the case of self-employed individuals, the taxpayer is not required to submit any document. However, they must keep all documents ready in case they are asked for any.
Final Word
If you are paying off a Home Loan, do not forget to avail yourself of Home Loan tax benefits. Use the information mentioned in this article to save as much taxes as you can by way of a Home Loan.
