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Know Your Income Tax Benefits on Home Loan

Buying our own house is like a dream come true for most of us. The feeling of being the owner, of not paying monthly rents and being free to do anything we want in our own house is quite unlike any other. But did you know that the Government of India also encourages its citizens to invest and own a house?

The Government offers tax benefits on home loans to both first-time homebuyers and repeat buyers so that there is less of a burden on them while repaying the entire amount. These income tax benefits on home loans help borrowers save a substantial amount of money every year, while also taking them one step closer towards owning a house.

Income Tax Rebate on Home Loan

When you buy a house on a home loan, it comes with multiple tax benefits that significantly reduce your tax outgo. The EMI you pay every month towards the repayment of your house loan consists of two components, interest payments and the principal amount. The Government offers tax benefits on home loans under the Income Tax Act of 1961, under several sections, on the principal amount or the interest paid or both.

Deduction on Interest paid on Housing Loan (Under Section 24B)

The total interest amount paid during a financial year can be claimed as a deduction from your total income up to a maximum of ₹ 2 lakh. For a residential property purchased with a home loan and let out, there is no limit specified for how much home loan tax exemption a borrower can avail.

The criterion for this home loan tax benefit requires the loan to be taken for the purchase/construction of a house and the construction of the house must be completed within 5 years from the end of the financial year in which the loan was taken.

Deduction on Interest Paid Towards Home Loan During the Pre-Construction Period

If you have bought an under-construction property and have not yet moved in, but are paying the EMIs, then the deduction is claimable only from the year of completion of the construction.

This means that you will not be able to enjoy any housing loan tax exemption on the interest paid during the period falling between the borrowing of the loan and completion of the construction.

Deduction on Principal Repayment (Under Section 80C)

The principal component of your home loan EMI paid in a financial year is also eligible for deductions. Under section 80C, a maximum of ₹1.5 lakh can be availed by a home buyer as a housing loan tax exemption towards the year’s tax calculations.

To claim this home loan tax benefit, the property should not be sold within 5 years of possession, or the deduction that was claimed earlier will be added back to your income in the year of sale.

Deduction for Stamp Duty and Registration Charges

The stamp duty and registration charges can also be claimed as part of the tax rebate on home loans under section 80C but with the overall limit of ₹1.5 lakh in one financial year.

Deductions Under Section 80EE

First-time homebuyers can also claim an annual interest deduction of up to Rs.50,000 under Section 80EE. This home loan tax benefit is awarded only to first-time homebuyers who have purchased a property priced under ₹50 lakh, with the home loan amount not exceeding ₹35 lakh.

Additional Deductions Under Section 80EEA

Under section 80EEA, additional tax savings on home loans is allowed for home buyers for up to ₹1.5 lakh in a financial year. It is available over and above the deduction under section 24 for a maximum of ₹ 2 lakh. However, it is to be noted that these housing loan tax benefits are only available on affordable houses, i.e. on the purchase of houses with a stamped value of no more than ₹45 lakh.

Also, do keep in mind that the same amount cannot be claimed twice under two different sections. For instance, you can avail income tax deduction of up to ₹1.5 lakh either under section 24 or under section 80EEA.

Deductions on a Joint Home Loan (Under Section 80C)

Home loans that have been availed jointly are also eligible for deductions on both the principal amount as well as the interest component. Based on the repayment amount and individual contribution, each of the loan holders can claim a deduction on the loan interest of up to ₹2 lakhs, and on principal repayment of up to ₹1.5 lakh in their individual tax returns. The condition to avail this housing loan tax benefit is that the borrowers should also be co-owners of the property taken on loan.

How to calculate home loan tax benefits?

You can take the help of an income tax calculator to calculate tax benefits on home loan. It is an easy to find online tool to get easy and accurate estimations of the tax benefits. You will be required to fill in some key details, such as your gross annual salary, interest earned via savings account, interest earned from other sources, etc. and will then compute the total deductions available for you as per the details you entered.

How to claim home loan tax exemption?

You can claim your home loan tax benefits during your annual Income Tax Return Filing for the concerned financial year. You will require an interest certificate from a financial institution that would help your employer adjust the TDS accordingly.

While buying a new house with a home loan, there are multiple tax benefits available to you that can help you save a considerable amount of money. Plan your purchase in such a way that your loan helps you enjoy the maximum deductions possible, and make the process even sweeter.

At Muthoot Homefin, we offer home loans for different needs and budgets at the most attractive interest rates. Make your dream of owning a home come true. Visit the nearest Muthoot Finance branch or mail us at enquiry@muthoothomefin.com

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