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Should You Get a Home Loan to Save Your Taxes?_WC

3 min 01 Feb 2024
Home Loan for Tax Savings
Highlights:
  • Tax Exemptions on Principal and Interest Component
  • Deductions for First-Time Homebuyers

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 Tenor 

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DISCLAIMER:

While care is taken to update the information, products, and services included in or available on our website and related platforms/websites, there may be inadvertent errors or delays in updating the information. The material contained in this website and on associated web pages, is for reference and general information purposes, and the details mentioned in the respective product/service document shall prevail in case of any inconsistency. Users should seek professional advice before acting on the basis of the information contained herein. Please take an informed decision with respect to any product or service after going through the relevant product/service document and applicable terms and conditions. Neither Bajaj Housing Finance Limited nor any of its agents/associates/affiliates shall be liable for any act or omission of the Users relying on the information contained on this website and on associated web pages. In case any inconsistencies are observed, please click on contact information.

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