Tax Benefits on Home Loans for Self-Employed Individuals: What You Need to Know_Banner_wc
Tax Benefits on Home Loans for Self-Employed Individuals: What You Need to Know_WC
These days, most people who buy a home opt for a Home Loan to arrange the money required. Property prices have increased multi-fold over the last few years and therefore, most middle-class and upper-class people find it nearly impossible to buy a home without seeking assistance in the form of Home Loans. Home Loans have advantages too. To start with, Home Loans allow borrowers to keep their savings safe for a rainy day and still be able to afford a home of their own. Further, the tax benefits on Home Loans allow borrowers to save a lot money each year in the form of taxes. However, Home Loans are big-ticket loans often running into lakhs and crores. Therefore, borrowers must avail of these loans after proper planning. Lenders offer Home Loans to both salaried and self-employed individuals. Let us look at the tax benefits on Home Loans purely for self-employed individuals.
Tax Benefits on Home Loan (FY 2022-23) for Self-Employed Individuals
If you are self-employed and have availed of a Home Loan, you can avail yourself of the following tax benefits.
Tax Benefits Available Under Section 80C of the Income Tax Act
Home Loans are repaid in the form of EMIs which constitutes of a principal and an interest component. While self-employed Home Loan borrowers can claim deductions on both the components, Section 80C allows a borrower to claim tax benefits on Home Loans particularly on the principal component. To be more specific, borrowers can enjoy deduction of up to Rs.1.5 Lakh per annum. One thing to note is that Home Loan tax benefits under Section 80C are available for both self-occupied and let-out properties. Further, one can also claim one-time deduction on the stamp duty and registration charges (in the year in which they were incurred) under this section of the Income Tax Act.
Tax Benefits on Home Loans Under Section 24(b) of the Income Tax Act
Home Loan borrowers must know that Section 80C of the Income Tax Act deals with several different tax-saving instruments. However, Section 24(b) of the Income Tax Act deals with only the interest component of the Home Loan. Under this section of ITC, both salaried and self-employed individuals can claim tax benefits on the interest component of the Home Loan up to a maximum of Rs.2 Lakh. Further, one can claim this deduction on all let-out properties they have. In the case of let-out properties, there is no limit on the deduction that one can avail of. However, if your tax deduction exceeds Rs.2 Lakh, it will be adjusted against other income heads, but the total deduction cannot exceed Rs.2 Lakh in any given financial year.
Tax Benefits on Home Loans in the Case of Affordable Housing
If a self-employed individual invests in an affordable house, they can claim an additional deduction under Section 80EEA of the Income Tax Act. Please keep in mind that this deduction is available over and above the tax deductions on the interest component of the Home Loan under Section 24(b) of the Income Tax Act. However, to be able to claim this tax benefit, one must meet the following criteria:
- The borrower must have availed of the loan between April 1, 2019 and March 31, 2021
- The Home Loan borrower must have had no other property in their name at the time of signing of the loan agreement
- The stamp duty of the property cannot exceed Rs.45 Lakh
Please note that there are no tax benefits on Home Loan (FY 2022-23) under the affordable housing category. Therefore, borrowers cannot claim tax benefits under Section 80EEA if they have availed of a loan after 2022.
In conclusion, using tax benefits on Home Loans, both salaried and self-employed individuals can save a considerable amount of money. However, a Home Loan is a big-ticket expense and therefore, one must avail of a Home Loan only when they are ready for the commitment. Further, borrowers must also know that not everyone who applies for a Home Loan gets approved for one. Lenders have strict eligibility requirements for Home Loans and only those who meet these qualifying criteria get approved for a loan. Let us look at the eligibility requirements for a Home Loan for self-employed individuals.
Eligibility Requirements for Home Loans for Self-Employed Individuals
Before we state the eligibility requirements for Home Loans, let us share with our readers that the self-employed category does not include professionals such as Doctors and Chartered Accountants. It includes traders, store owners, contractors, etc. Here are the eligibility requirements for self-employed individuals for Home Loans in India.
- The applicant must be able to show a stable source of income. To be able to prove this, most lenders ask applicants to submit last 3 years’ IT returns and profit and loss statements.
- Self-employed individuals applying for a Home Loan must be between 25 and 70 years of age. However, keep in mind that the age requirements vary from lender to lender. Therefore, one must check the age requirements with their lender before applying for a loan.
- The applicant must have good financial health. Lenders also assess a borrower’s repayment capacity and they do so with the help of the CIBIL score. Borrowers should preferably have a credit score of 750 or above to be eligible for the best Home Loan deals.
Home Loans are big-ticket loans and therefore, one must avail of these loans after careful planning. Use a Home Loan eligibility calculator to figure out the maximum loan amount you can afford to borrow and easily repay. Further, before beginning the loan application process, go to your lender’s website and go through their eligibility criteria to check whether you apply or not. Apply only if you qualify for the Home Loan. Also, check the list of documents you will need to provide. Keep these documents ready to experience a smooth loan process. Further, if you have availed of a Home Loan, please understand the tax benefits on Home Loans you qualify for and make sure you are availing of the benefits available to you. Home Loan tax benefits can help Home Loan borrowers save a lot of money each year and even more in the long run. So, use these benefits extended to you by the Government to your best advantage.
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Tax Benefits on Home Loans for Self-Employed Individuals: What You Need to Know_RAC_WC