A home is a shelter that allows us to do whatever we want to do. Apart from the freedom and other privileges, the amount of mental satisfaction that it provides can’t be underscored from any stretch of the imagination. But the question appears, how will you get it? When you talk about the price, you may have to shell out lakhs and crores at one go to buy a home. I know, many may not be able to pay such a lump sum. This is where a home loan can come handy with pocket-friendly EMIs to remove the hassle of lump sum payments at one point. You can avail a home loan from a bank or non-banking financial company (NBFC) for a period of 20-30 years. As home loan interest rate currently is on a downward spiral, you are all set to enjoy an economical home stay with the lesser outflow from your pocket.
But most borrowers tend to ponder over the question, is home loan tax deductible? The question assumes enormous significance for the home borrowers as it saves a lot of their hard earned money. To their delight, let me inform that tax deductions are allowed on a home loan. But how does tax benefits pan out in your home loan journey, is something you need to understand for a pleasant stay at your searched house.
Home Loan Tax Benefit Calculator
Tax benefits work on a dual basis when it comes to a home loan. Means, the benefits are applicable to both principal and interest repayments under different sections of the Income Tax Act. While tax deductions on principal repayments are allowed as per Section 80C of the IT Act, Section 24 comes into the picture by offering tax exemption on interest repayments. As the ramifications of taxation with respect to home loan is slightly intricate in nature, we will slowly but gradually disseminating the information to let you understand the concept clearly. So, without wasting any time, let’s start evaluating the tax benefits as per both the sections.
Section 80C (Principal Repayment)
An individual or a Hindu Undivided Family (HUF) paying the principal amount on a home loan can claim tax exemption to a maximum amount of Rs. 1,50,000 as per Section 80C of the IT Act.
You can avail tax exemption based on the payment regardless of the year in which has taken place. The payment of stamp duty and registration fee are also counted in the tax deduction under the Section 80C even if you have not availed a loan.
Tax deduction on principal payment is allowed subsequent to the construction of the house and the issuance of completion certificate.
The time for which the property is under construction will not fetch you any tax benefits on the principal amount paid.
You would not be eligible for tax benefits if you transfer the property, on which you have claimed tax exemption under Section 80C, before 5 years from the end of the financial year in which you had taken the possession. The claim amount of tax deduction will be treated as your income in the year when the property is sold and thus you would have to pay tax on the same.
Section 24 (Housing Loan Interest Exemption Limit for AY 2016-17)
You can claim the tax deduction on interest amount paid under Section 24 of the Income Tax Act.
The maximum tax deduction permissible on interest paid amounts to Rs. 2 lakhs in the case of a self-occupied property.
Income tax rebate on home loan for an under-construction property is calculated to be 1/5 of the overall interest paid. However, the tax benefit is applicable only when the possession of the property is done.
In the case of renovation or reconstruction of a home, the maximum amount of tax benefit is reduced to Rs. 30,000.
Section 80ee Income Tax Benefit on Interest Paid on a Home Loan for First Time Buyers
On both self-occupied and non-self occupied property- Tax deduction is capped to Rs. 1,00,000
Hope you have got the answer to the question, is home loan tax deductible? However, there are several conditions that you have to comply with. Wanna know which are those? Check out the points below.
You can miss out on tax benefits if you are not a borrower despite being an owner of the property. So, sign up for the loan if there are butterflies in your stomach to avail the benefits.
In case you are a borrower but not an owner of the property, the tax benefits will elude you. So be an owner to claim tax benefits and soothe your pocket against the tax attack.
Claiming of tax benefits will begin from the year in which the property construction is completed.
It is necessary you obtain an interest certificate from the lender, showing the details of loan repayments.
So, by taking a cue from this article, you can make most of the tax exemptions applicable to a home loan. Wishing you a happy home loan journey with a flurry of tax benefits to feed upon.