Top 5 Ways to Avail of Tax Benefits on Home Loans

Home Loans offer several benefits, the biggest of them perhaps are the tax benefits that come along with this financial instrument. When you take a housing loan, you become eligible for availing of tax benefits throughout the tenor of the loan .Let us look at 5 simple ways in which you can save money on a Home Loan.  

1. Claim Exemption on Principal Repayment

Your Home Loan EMIs constitute two components: principal and interest. Home Loan borrowers can claim tax deductions up to a maximum of Rs.1.5 Lakh on payments made towards principal repayment under Section 80C of Income Tax Act. If you have another home occupied by family members or one that you have rented out, you can claim deductions on principal repayment for this house as well. However, the total deduction under section 80C of the Income Tax Act cannot exceed Rs.1.5 Lakh.  

Over and above tax exemptions on principal repayments, this section also deals with exemptions on stamp duty paid and registration fee. Borrowers must know that Section 80C deals with several other tax-saving instruments and not just exemptions on the principal component of a Home Loan. You can also use an income tax calculator to determine how much tax relief you are entitled to. 

2. Claim Exemptions on Interest Repayment

Section 24 of the Income Tax Act deals with exemptions on interest component of the Home Loan. Under this section, borrowers can claim up to a maximum of Rs.2 Lakh as deductions on payments made towards interest repayment. If you have more than one home, you can claim tax deduction on both under this section of the Act. However, the total deduction cannot exceed Rs.2 Lakh in a financial year.  

Borrowers must know that Section 24 of the Income Tax Act concerns itself only with tax exemptions on interest component of a Home Loan and no other tax-saving instrument falls under this category. 

3. Claim Extra Deductions If You Are a First-Time Homebuyer

If you are a first-time home buyer who availed of a Home Loan in the fiscal year 2016-17, you can claim an additional Rs.50,000 as tax exemption under Section 80EE of the Income Tax Act. However, to be able to claim this benefit, there are certain conditions that must be met. To start with, you should have taken out the loan after April 1, 2016 and before March 31, 2017. The value of the property for which you had availed of a Home Loan must not have exceeded Rs.50 Lakh at the time and the value of the Home Loan must not have exceeded Rs.35 Lakh. If these conditions are met, a borrower can claim an additional Rs. 50,000 in home loan tax benefits each year until the loan is paid off.  

Read Also: Way to Reduce Your Interest Outflow While Repaying a Home Loan 

4. Tax Deduction on Joint Home Loans

Government aims to promote women home ownership and want more and more people to add their spouses as co-owners. To promote this, the Government of India offers special benefits in the case of joint Home Loans. All those serving a joint Home Loan can each claim Rs.1.5 Lakh as tax exemption on principal repayment and Rs.2 Lakh on interest repayment separately. Thus, if a husband and wife have taken a Home Loan together, combined they can claim Rs.7 Lakh as tax deductions on their Home Loan. This is a huge amount and can help families save a lot of money in the long run. 

Read Also: Benefits of Joint Home Loan 

5. Tax Exemption on an Under-Construction Property

If you are buying an under-construction property, you can claim tax exemption on interest repayment made during the construction phase in five yearly equal instalments starting from the year in which construction was completed. However, the total exemption cannot exceed Rs.2 Lakh in each financial year.  

Read Also: Before Applying for a Home Construction Loan Consider these Factors 

Use Home Loans to Your Benefit

Home Loans are a safe and convenient way of building an asset. In a country like India where homes are synonymous with stability and security, a Home Loan can help one take care of one's life's biggest goal or dream while helping them save a considerable amount of money each year in the form of tax benefits. So, if you are planning to avail of a Home Loan, do not think much - you are making a wise decision. Do financial planning, figure out what EMI can you afford each month and take the plunge. Make sure to add a co-applicant to avail of maximum tax benefits on Home Loans under various sections of the Income Tax Act. If you already have a Home Loan running, make sure to claim deductions under various section of the Income Tax Act. Seek the help of an expert if you lack in this department.