Many people dream of owning a home, and a home loan can be a pathway to attaining that dream. While the prospect of applying for a home loan may seem frightening, there are various tax advantages to these loans. These benefits can make the financial load much more manageable.
In this blog, we’ll look at the numerous tax breaks available for a home loan and why you should take advantage of them. These advantages can help you save money and make the process of becoming a homeowner less difficult.
Section 24(B) – Deduction on Interest
One of the most significant tax benefits of a home loan comes under Section 24(B) of the Income Tax Act. This section allows you to claim a deduction on the interest paid towards your home loan. As per experts, you can claim a deduction of up to ₹2 lakhs per financial year if the property is self-occupied. It can be claimed only if you complete the building of the house within 5 years otherwise, you can claim only ₹30,000.
Section 80C – Deduction on Principal Repayment
Under Section 80C, you can claim a deduction on the principal repayment of your home loan. The maximum limit for this deduction is ₹1.5 lakh. To claim 80C tax benefits, the borrower needs to use the amount to purchase or construct a new property. Moreover, the property should not be sold within five years of possession. Otherwise, the deduction claimed earlier will be added back to the income in the year of sale.
Section 80EEA – Additional Interest Deduction for First-Time Homebuyers
For first-time homebuyers, Section 80EEA provides an additional interest deduction of ₹1.5 lakh on home loan interest. To avail of this benefit, the stamp duty value of the property should not exceed ₹45 lakhs, and the loan should be sanctioned between April 1, 2019, and March 31, 2022.
Section 10(14) – House Rent Allowance (HRA)
If you’re staying in a rented house while also repaying a home loan on a property in a different city for work purposes, you can claim House Rent Allowance (HRA) under Section 10(14). This provision can significantly reduce your tax liability.
Joint Home Loans – Increased Deduction Limits
For those who have opted for a joint home loan with family members or a spouse, there’s a good news. Each co-applicant can claim deductions separately, allowing you to enjoy higher tax benefits. This can be especially advantageous in cases where both individuals are working and repaying the loan together.
Under Construction Property – Spread Over 5 Years
If you’ve taken a home loan for an under-construction property, you may wonder when you can start claiming deductions. The good news is that you can start claiming deductions on the interest paid during the construction phase. This interest can be spread over five equal instalments, starting from the financial year in which the construction is completed.
Pre-EMI Interest Deduction
Many individuals opt for a home loan that has a pre-EMI period before the actual EMI starts. The interest paid during this pre-EMI period can also be claimed as a deduction in five equal instalments, starting from the year in which the construction was completed.
Affordable Housing – Additional Deductions
The government has been promoting affordable housing with additional incentives for homebuyers. Under Section 80IBA, you can claim a 100% deduction on profits from the business of developing and building affordable housing projects. This benefits developers, and as a homebuyer, you indirectly gain from the lower costs of such housing.
Tax Benefits & Home Dreams with Tata Capital
Investing in a home is a significant life decision and also a smart financial move, especially when you consider the tax benefits associated with home loans. By taking advantage of these deductions, you can save a substantial amount of money while achieving your homeownership dreams.
It’s important to keep in mind that tax laws and regulations are subject to change. It is advisable to consult a qualified tax professional or financial advisor to ensure you are making the most of the available tax benefits when applying for a home loan. Additionally, always keep your financial records and documents in order to claim these deductions accurately.
Take advantage of the tax benefits that come with home loans. They make your dream of owning a home more affordable and also contribute to your overall financial well-being.
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