Taking a home loan can help you save tax as per the provisions of the Income Tax Act, 1961. Even more so after the announcements made during the latest financial budget 2020: Tax benefits for home loans remain unchanged, though the timeline for availing loans for affordable housing has been extended for a year - till 31 March 2021. While a housing loan can help you get a house for yourself, it can also turn out to an expensive affair. But the various tax benefits that come with such a loan help you save money every year. Take a look at how you can make the most of these benefits.
The following table gives you the tax benefits under the corresponding sections of the Income Tax Act, 1961.
|Income Tax Act||Maximum Deductible Amount|
|Section 24||Rs.2 lakh (for 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)|
This section deals with the yearly deductions related to the interest you pay on your property loan. The relevant details are given below:
Section 80C deals with the principal amount deductions:
If you’re buying a house for the first time, you can claim the following interest deduction in addition to the benefits already mentioned above under Sections 24 and 80C:
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 to Rs.1.5 lakhs each. However, all the applicants should also be co-owners of the property in order to claim this deduction. Therefore, a joint home loan can give you greater tax benefits.
As per the current provisions, if you have more than one self-occupied 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 notional rent. You can choose either of your properties as the self-occupied one to maximise tax benefits.
As per the finance budget announced in February 2019, it was proposed that the second self-occupied home can also be claimed as a self-occupied one instead of it being deemed to be let out on rent. This will prevent the incidence of paying tax based on notional rent, helping the owner save money. It will also help you claim tax deductions for the second property as well.
Imagine a situation where you are staying in a house on rent and have also taken a home loan for your own property. In such cases, you can not only claim tax deductions on your loan, but also claim House Rent Allowance (HRA) deductions on the rent you’re paying. However, note that you can claim this deduction only if you live in the house you’ve rented. You cannot make a claim even if your dependent family members are staying in it without you. You can claim HRA depending on the lowest value of:
Remember these when you file your taxes for the year.
Now that you know what tax benefits you get when you take a property loan, make sure you use them to your advantage and save as much money as you can.
Claiming tax benefits on home loan is a simple process. Below are the steps to claim your tax deduction.
Step1: Calculate the tax deduction to be claimed.
Step2: Ensure that the house is in your name or you are the co-borrower of the loan.
Step3: Submit your home loan interest certificate to your employer to adjust the tax deductible at source.
Step4: In case you don’t perform the above step, you would have to file the tax return by yourself.
Step5: In case you are self-employed, you are not required to submit these documents anywhere. Just keep them handy if in case the IT department raises queries in the future.
The easiest way to calculate your tax benefits on home loan is by using an online calculator. Simply enter your home loan details and click on calculate and a detailed tabulation will pop up. The details you will generally need are:
If you sell the property within 5 years of possession, any tax deductions already claimed will be reversed. However the tax exemptions on interest paid will remain unchanged.
The owner of the property can claim tax benefits. If the spouse is a co-borrower, they can also file for tax deductions. In the case of a joint loan, both parties can claim for their share of the loan they pay.
You cannot claim tax deductions till the construction is completed. Once it is completed, you can claim an aggregate of interest paid for the period prior to the year of taking possession. This can be claimed in five equal instalments from the year in which construction is completed.
You can claim for tax deduction under Section 24(b) only for the interest paid. The friend will have to provide you with a certificate and will be liable to pay tax on the interest earned from the loan.
Generally, tax benefits can be availed only on the house claimed as self-occupied. In case if you own two houses, only one of them can be claimed as self-occupied property. The other house will be considered as a let-out property and will be taxed as per the tax slab applicable. The notional rent on your second house will be added to your income. To save on the applicable tax, one can consider investing the second house in his/her spouse’s name. However, only one residential property can be relieved from being taxed. You will have to pay wealth tax on the second home.
Yes, you can claim separate deductions in your IT returns if your spouse is employed and has a different source of income. You can both claim deduction under Section 80C up to Rs.1.50 lakh from your total income. If the house is jointly owned, each co-owner can claim deductions up to Rs.2 lakh on account of the interest on borrowed money. However, if the house is being rented, there is no restriction on the claiming amount and you can individually claim deductions based on the ratio of possession on the property.
Yes, home loan principal is part of Section 80C of the Income Tax Act. Under this section, an individual is entitled to tax deductions on the amount paid as repayment of the principal component on the housing loan. An amount up to Rs.1.50 lakh can be claimed as tax deductions under Section 80C. However, the tax benefit on the repayment of the principal amount can be claimed only after the house is constructed. The section does not allow deductions for the repayment of the principal part during the years the house was being constructed.
An individual is entitled to the following benefits if he/she is staying in a rented place after buying a home loan:
The Housing Rent Allowance benefit stops once the construction of the property is complete. You can avail all tax benefits on the housing loan only if the construction of property has been completed and is ready to move in during the same financial year. You can still claim tax benefits if you are living in a rented accommodation after giving your house on rent. However, the rent you receive on the property will be added to your taxable income and will be taxed as per the applicable tax slab.
No, self-employed individuals cannot claim Housing Rent Allowance (HRA) benefit. However, you can save tax on the house rent paid under Section 80GG of the Income Tax Act, provided the rent has not been claimed under another section of the IT Act.
You can also claim tax deductions in respect of the interest on the housing loan under Section 80EE of the Income Tax Act. Under this section, an individual is entitled to claim tax deductions up to a maximum amount of Rs.50,000 during a financial year. The deductions, however, cannot be claimed if you have repaid the entire home loan. You can claim tax benefits under Section 80EE if you haven’t purchased a house before. The value of the house should not exceed Rs.50 lakh and the home loan taken for the property should be less than Rs.35 lakh to avail this benefit.
Yes, you can avail tax benefits on the principal amount repaid on the home loan from total income under Section 80C. However, you can only claim tax deductions up to a maximum amount of Rs.1.50 lakh under this section.
Under Section 24 of the Income Tax Act, an individual can claim tax deduction of the interest payment on the housing loan up to a maximum amount of Rs.2,00,000. However, there is no limit on the interest payment deduction of the property is rented.
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