Home Loan tax benefits India

Why take Home Loans if you can afford to buy one?

As per the provisions of the Income Tax Act, 1961 taking a home loan can help you save tax. After the latest Financial Budget announcement, these income tax savings are likely to increase and the benefits to buyers of affordable housing have been extended until March 2021. A housing loan can help you save tax. But without proper consultation and advice, it can turn into an expensive affair. A home loan can help you save money every year with the benefits enlisted in the Income Tax Act. Here’s how you can make the most of these benefits.

Tax Deductions on Home Loan (FY 2020-2021)

The following table gives you the tax savings on housing loans under the corresponding sections of the Income Tax Act, 1961.

Income Tax Act

Maximum Deductible Amount

Section 24

Rs.2 lakh (for the self-occupied house)
No limit (for let-out property)

Section 80C

Rs.1.5 lakh from Principal (including stamp duty and registration fee)

Section 80EE

Rs.50,000 Additional interest (for first-time buyers)

 

Current Home Loan Tax Benefits (FY 2020-2021)

The following are the relevant details about the yearly tax deductions on housing loans related to the interest paid on home loans.

• If the property is self-occupied, you can claim a maximum deduction of Rs.2 lakh.
• If you let it out on a rental basis, you can claim any amount actually paid as interest. There is no limit.
• Co-borrowers and also co-owners of the house can each claim up to the maximum deductible amount.
• The Rs.2 lakh deduction applies only if the construction of the property is completed within 5 years. Otherwise, you can claim only Rs. 30,000.
• If the property is rented out, you can claim any amount actually spent as interest, even if it is not completed.

 

Home Loan Tax Benefits under Section 80C, Income Tax Act, 1961

Section 80C deals with the principal amount deductions:

• For both self-occupied and rented properties, you can claim up to Rs.1.5 lakh every year as a deduction, only after the completion of construction.
• To claim this deduction, the house should not be sold within 5 years after possessing it.
• If you sell your house within 5 years after possession, any tax deduction on housing loan interest claimed will be added to your income for the year of sale.
• Stamp duties and registration fees paid can also be claimed for your property under this section.

Deduction for Joint Home Loan

If the housing loan is availed by two or more persons, each of them is eligible to claim a deduction on the interest paid up to Rs.2 lakh each. Tax can be deducted on the principal paid as well for an amount up to Rs.1.5 lakhs each person. However, in order to claim this tax deduction on housing loan interest, all the applicants must be co-owners of the property. A joint home loan can give you greater tax benefits, as opposed to an individual.

Home Loan Tax Benefits of Owning more than one Property

As per the current provisions, if you have more than one property, then only one of them will be accepted as self-occupied. For the other property, you will have to pay tax on the basis of rent received. You can choose one of your properties as the self-occupied one to maximize tax benefits on housing loans.

The latest finance budget announced that the second self-occupied home can also be claimed as a self-occupied one instead of it being deemed to be rented out. This will prevent the incidence of paying tax based on rent, helping the owner save money. It will also help you claim tax deductions for the second property also.

HRA and Tax Benefits

If you are staying in a house on rental basis and also have taken a home loan for your own property, you can claim tax deductions on your loan as well as House Rent Allowance (HRA) deductions on the rent you’re paying. You can claim HRA depending on the least value of:

• The HRA you receive from your employment.
• 50% of your salary if you live in a metro city or 40% if you live elsewhere.
• The rent minus 10% of your salary.

These points are to be noted when filing taxes for the corresponding year.

These are the tax benefits you get while taking a home loan. Make sure you use them to save as much money as you can and also invest in the right property at the right time with the best home loan deals available in the market.

 

 

This 5-step process will help you claim tax benefits on home loans:

Step1: Calculate the tax deduction that needs to be claimed.

Step2: Ensure that either you are the owner of your house or the co-borrower of the loan.

Step3: Submit your home loan documents to your employer to adjust the TDS.

Step4: In case you don’t follow Step 3, file the tax returns yourself.

Step5: If you are self-employed, you are not required to submit these documents anywhere. Just keep them filed, if in case the IT department raises queries in the future.

Conclusion:

In the next blog post, we will keep you posted about a comparison for the best home loans available in the market, which will include public as well as private banks and other financial institutions.