While housing loans help meet the finances required for residential purchases, income tax exemptions are aimed to help attract borrowers to invest in the housing sector. Taking into consideration that such secured advances come with a reassurance of mortgage to recover outstanding loan amount in case of defaults, lenders keep their spread over the MCLR to a bare minimum.
Subsequently, the rate of interest on these loans is comparatively low and hence fetches reduced total cost of the credit and pocket-friendly EMIs. It is because the amortization process involved in computing monthly installments includes a fair share of both interest and the principal amount that is compounded in reverse direction.
Tax savings on home loan involves savings on both the interest and principal portion, which further eases the affordability and accessibility aspects of a housing option. To sum up such tax benefits –
Towards the interest paid on a home loan –
Secured advances like home loans fetch a high-value credit amount against a competitive rate of interest that ensures a convenient repayment structure. However, homebuyers can still claim for further reduction on their housing loan interest rate under Income Tax Act Section 24b. The cap on maximum tax reduction claimed for self-occupied house property is Rs. 2 Lakh, while there is no cap in case of let out property.
Towards interest paid during the pre-construction period
Individuals can claim income tax benefits on a home loan on properties post completion of the property under Section 24b. However, during the span of borrowing an advance and completion of the construction on a property, individuals can still claim home loan tax benefits for under-construction property.
On the principal repayment –
Homebuyers can claim an income tax benefit on a home loan on its principal amount under Income Tax Act Section 80C that comes with a cap of Rs. 1.5 Lakh. However, homeowners should not sell the mortgaged property within 5 years of gaining its possession. In such cases, the deduction claimed will be added on to the annual income of a borrower in the following year.
Borrowers can also claim a deduction of the registration and stamp duty charges under this section, and it comes with maximum eligibility of Rs. 1.5 lakh.
Under Section 80EEA
Tax saving on home loan under Section 80EEA is an initiative to boost the purchase of residential spaces for first time home buyers. Under this section, individuals purchasing a residential property for the first time are liable to claim for a tax deduction on the payable interest. In this case, the maximum tax deduction is capped at 1.5 Lakh, which is over and above the interest tax deduction under Section 24b.
On a joint home loan
In case of home loans taken jointly, each of the loan holders are liable to claim a tax deduction of up to Rs. 2 Lakh each on their interest and up to Rs. 2 Lakh towards the principal amount. However, to enjoy the tax benefits on a joint home loan, they need to have joint ownership of the property availed.
Following this above-mentioned list of tax benefits, and using a home loan tax benefit calculator borrowers can look out for advances that best suits their requirements and helps save on the total loan cost.
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