Everyone dreams of buying a house someday – it is a lifelong dream for millions of Indians. The best way to achieve this dream is with the help of a home loan, especially if you don’t have a lot of money to invest in real estate. To promote this trait of securing a house, the Government of India has come up with many excellent schemes and initiatives garnered towards the citizens. One of these is the tax benefit that can be enjoyed on a home loan.
Yes, that is right – if you have applied for a home loan, then it is more than possible for you to avail tax deductions under various sections of the Income Tax Act. This is a terrific way to reduce your tax liability and save a great deal of money in the process. So, without further delay, let us take a look at the home loan tax benefits that every first-time homebuyer should know.
Tax Benefit on the Interest Component of Home Loan
As you know, a home loan EMI has two components – principal and interest. As per the law, it is possible to claim tax deductions for the two separately.
Section 24 of the Income Tax Act states that the maximum amount that can be claimed as a tax deduction with respect to the interest component of your home loan is Rs.2,00,000. However, to avail this benefit, there are a couple of conditions that must be met before: the construction of the property should have been completed within five years. If the time exceeds five years, then the amount you can claim drops significantly.
Tax Benefit on the Principal Component
The tax benefits that can be enjoyed on the principal repayment of a home loan EMI are described in Section 80 C of the Income Tax Act. In this case, it is possible to claim a maximum deduction of Rs.1,50,000. However, once again, there are a couple of conditions that need to be fulfilled: the construction of the house should be completed. Furthermore, to avail this benefit, the property should not be sold within five years of possession. If you do so, the deduction you claimed will be added back to the income for the year in which you sell the house.
First Time Homebuyers
In a bid to encourage investment in the real estate sector, the Income Tax Act has provisions for first-time homebuyers. This is described in Section 80 EE of the act as per which, people who are buying a house for the first time can claim an additional deduction of Rs.50,000 per financial year. However, keep in mind that in order to avail this benefit, the value of the home loan should be less than Rs.35,00,000 and the value of the property must not exceed Rs.50,00,000.
Stamp Duty and Registration Charges
Stamp duty and registration charges are inevitable when it comes to buying a house. The charges may be quite high but the good news is that it is possible to claim that amount as a tax deduction. The provisions for the same have been described in Section 80 C of the Income Tax Act and once again, the maximum amount that can be claimed as a tax deduction is Rs.1,50,000.
Joint Borrowers and Co-Owners Tax Benefits
In order to reduce your tax liability further, it is always recommended that you apply for a home loan with your friend, relative, or spouse. This approach will also help you save a lot of money. The home loan needs to be taken jointly and the co-borrowers should also be the co-owner of the property. Once these conditions are met, all the co-borrowers can file for tax returns individually and avail all of the aforementioned benefits.
As you can see above, the tax benefits that accompany a home loan EMI are wide and comprehensive. If done correctly, they can boost your savings significantly, especially if you apply for the loan with a co-borrower. In case of any confusion, you can always seek professional advice from a chartered accountant.
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