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Friday, December 07, 2018

Different ways to gain tax benefits from your home loan


                       
Different ways to gain tax benefits from your home loan

Loans are your friends in need, but taking a loan also means that you take a regular liability on your monthly income. EMIs on loans form a considerable share of households expenses. Hence, it always helps to take loans in a manner that you get low-interest rates and you reduce your overall debt burden.

If you are planning to buy your dream house, you have the option to apply for a home loan. One of the most significant advantages of home loans is that they come with tax benefits. Tax rebate on a housing loan will help you to reduce your overall tax liability. In the below sections we have discussed in detail the tax benefits on home loans.


Tax benefits on home loans:
In the case of home loans, you are allowed to claim interest rate deduction both on interest paid and the principal amount of the loan under Section 24 and Section 80C respectively of the Income Tax Act.

Section 80C:
You can avail tax benefits on the annual principal repaid amount on your home loan under Section 80C of the Income Tax Act. Maximum annual tax deduction allowed is Rs. 1.5 lakh. The amount you pay for registration fees and stamp duty can also be counted for deduction under section 80C. However, please note that you can claim tax benefit for repayment of principal loan amount only after the construction of your house is complete.

Section 24:
a) Self-occupied house: You can claim a deduction of up to Rs. 2 lakh every year against the interest amount as per Section 24 of the Income Act. This benefit is available for the self-occupied property. If the house is not constructed fully or acquired within 3 years from the end of the financial year in which loan was taken, you will be allowed to claim only Rs. 30,000 as a deduction.
b) For under construction property: For under-construction houses, the following rules are applicable:
Purchase or construction: The interest amount that has been paid before the completion of construction would be treated as a tax deduction in 5 equal installments for the next 5 financial years. For example, if the total interest paid is Rs. 5 lakh during the construction period, one can claim Rs. 1 lakh deduction every year for the next 5 years.
For reconstruction/ renewal/ repair: No tax benefit is allowed for the interest paid in EMIs before completion of the property.

c) Tax treatment on vacant property:

Vacant property: A vacant property is considered as let out and a notional rental income is calculated based on the market rates. Interest paid on loan taken to buy the property can be set off from the taxable income.
Property not self-occupied for reason of employment, business or profession in a different place or another city: As per Income Tax Rule (Section 24), the interest paid will be deductible only up to Rs 2 lakh.

Deduction for Joint Home Loan: If the housing loan is availed jointly by two or more people, each of them can claim a tax deduction of Rs 1.5 lakh on principal payment up to and Rs 2 lakh for interest payment. Please note that the total deduction claimed cannot exceed the actual principal amount repaid and interest paid during the year. It is also essential to be co-owners to be eligible for tax benefits.

Second home or additional property: You can claim a deduction of up to Rs. 2 lakh every year for interest component of your EMI for a loan taken to purchase a second home loan.
Now that you know that it is not only home loans where you can enjoy attractive tax benefits, thus reducing their overall cost. Now, this gives you one more reason to not wait to fulfill your dreams as their cost is even lower than the quoted cost if one accounts for tax deductions.


Different ways to gain tax benefits from your home loan Reviewed by S. Chitra on December 07, 2018 Rating: 5                           Different ways to gain tax benefits from your home loan Loans are your friends in need, but taking a loan ...

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