Availing of a Home Loan offers several advantages beyond helping you secure your dream home. One of the primary benefits is the ability to spread the cost of your property purchase over an extended period, making it more manageable. Moreover, Home Loans often come with competitive interest rates, thereby lowering the cost of borrowing. Home Loans also offer significant tax benefits under the Income Tax Act, 1961. You can claim deductions on both the principal and interest repayment amounts, reducing your overall tax liability.
Tax Exemption on Principal Repayment
Under Section 80C of the Income Tax Act, 1961, borrowers can claim deductions up to a maximum of Rs.1.5 Lakh on payments made toward the repayment of the principal component of the Home Loan. However, it should be noted that the property for which a Home Loan claim has been made cannot be sold within the first five years of possession. If the property is sold within this period, all tax benefits availed will be reversed and treated as taxable income. Stamp Duty and property registration charges can be claimed under Section 80C as well, provided the claim is made in the same year the expenses were incurred. However, the claim must fit within the limit of Rs.1.5 Lakh specified under Section 80C.
Tax Exemption on Interest Repayment
Under Section 24(b) of the Income Tax Act, 1961, borrowers can claim tax exemption up to a maximum of Rs.2 Lakh on payments made towards interest repayment. It only deals with Home Loan interest payments and no other tax-saving instruments fall under this section.
Tax Exemption in the Case of Joint Home Loans
If you and your partner decide to avail of a joint Home Loan, both the financial co-applicants can claim tax exemptions separately under Section 80C and Section 24(b) of the Income Tax Act, 1961. Let us understand this with an example. Assume that Mr. Anil took a Home Loan with his wife as a financial co-applicant. In this case, both Mr. Anil and his wife can claim separately Rs.1.5 Lakh as deductions under Section 80C and Rs.2 Lakh as deductions under Section 24(b) of the Income Tax Act, 1961. Thus, combined, in one financial year, Mr. Anil and his wife can claim deductions worth Rs.7 Lakh under various sections.
Also Read: Know about the Tax Benefits on Joint Home Loan
Deductions Available to First-Time Homebuyers
Over and above the deductions mentioned above, first-time homebuyers can claim an additional Rs.50,000 as deductions under Section 80EE of the Income Tax Act, 1961. However, this deduction is only available when a borrower meets certain conditions. For instance, for a borrower to be eligible for this tax exemption, the value of the property for which a Home Loan has been availed should not be more than Rs.50 Lakh and the Home Loan amount must not exceed Rs.35 Lakh.
Can You Save Taxes With a Home Loan?
Home Loans not only facilitate the purchase of a property but also help you save funds through Home Loan tax benefits. However, a Home Loan is a long-term commitment, and therefore, should be availed of after proper financial planning. Availing of a housing loan at favourable terms can help you secure your dream home easily without compromising your financial goals.
People Also Read: How to Pick the Right Home Loan Tenure
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