Buying A New Home On Loan? Know These Tax Benefits
Most first-time home buyers buy a home by taking loans from financial institutions. This is the only means of raising the large quantum of money needed to purchase a home these days which is usually from 7 to 8 digits. The loan is then repaid in Equated Monthly Installments (EMI) over a period, which has two components. The principal amount component and the interest on the loan component. The Income Tax of India provides several provisions that enable individuals to save in taxes while repaying home loans. These provisions apply to different components of the repayments.
Let us look at what our home loan guide says about these benefits.
1. Principal Repayment Deduction under Section 80C
Under Section 80C of the Income Tax Act home loan borrowers can avail of tax benefits on repayment of the principal amount. The maximum deduction allowed under this section is ₹1.5 Lakhs and this amount includes payment made towards the principal amount of the home loan, stamp duty, and registration charges. To claim this deduction, the property should not be sold within 5 years from the end of the financial year in which possession was obtained.
2. Interest Repayment Deduction under Section 24(b):
Home loan borrowers can avail of tax benefits on the interest component of the loan repayment. For self-occupied property like flats in Nagpur, the maximum deduction allowed is ₹2 Lakhs per annum. And for properties that are let-out or are deemed to be let out, the entire interest amount paid can be claimed without any upper limit. This is one of the most substantial tax benefits for home loan borrowers in India under Section 24(b) of the Income Tax Act.
3. Joint Home Loan Benefits
If more than one individual has taken a loan as a Joint Home Loan then both co-applicants can claim deductions available under Sections 24(b) and Section 80C individually. This can significantly enhance the overall tax benefits in the case of spouses or partners who own the property jointly. Owning a home in a township in Nagpur often requires both spouses to take a joint home loan.
4. Tax Benefits on Under-Construction Properties
For properties under construction, tax benefits can be claimed only after the construction of the property is complete. The interest paid in the period before the construction is completed can be claimed in five equal installments starting from the year in which the construction was completed.
Tax benefits were designed to promote home ownership and investments in the real estate industry. They provide financial relief to individuals who plan to own a home or invest in one. It is important to be updated on the revisions made to these policies from time to time.