Most of us are not fond of paying taxes even though we are aware that the tax that we pay is ploughed back by the government to provide its citizens basic infrastructure and amenities. Any option that helps us save tax is always welcome and there are various provisions in the IT Act that help you save tax if you have a home Loan. Since, it is an era of two minute noodles and quick fixes we have a two minute guide to help you understand the tax benefits on your home loans.
Tax benefits on your home loan:
The tax benefits that are available on your home loan can be divided into the following broad categories; each is available under a different section of IT Act. Benefits are available for:
Table for Benefits under Various Sections Section Deduction Conditions
Property should not be sold within 5 years
Can be claimed in the year expenses are made even if no loan is taken.
Construction should be completed within 5 years from the end of the FY in which loan was taken.
Loan amount less than or equal to Rs. 35 lakhs & house value should not be more than Rs. 50 lakhs
Principal repayment: This provision is available under Section 80C of the IT Act. The home loan borrower can seek benefit on the principal repayment subject to a Rs. 1.5 lakh limit of Section 80C. If the property is under construction then this deduction is available only after the construction is over. If the property is sold within 5 years of possession then the benefit is reversed. Under this section the buyer can also claim the amount that is paid as stamp duty and registration even if no loan is taken.
Interest repayment: Deduction on the interest repayment on home loans is available under section 24 of the IT act. The interest portion of the EMI can be claimed as deduction from the total income, the upper limit for this is Rs. 2 lakhs in a year for self occupied property if the construction is completed within 5 years. In case of let out property there is no upper limit but the overall loss that can be claimed under the head of house property is restricted to Rs. 2 lakhs. Deduction can be claimed in the year when the construction is completed.
First time buyers: This benefit is available to first time home owners under Section 80EE of the IT Act. As per the provisions of this section additional Rs. 50000 can be claimed per financial year towards interest payments. The value of the home loan must be less than Rs. 35 lakhs and the value of the house must be less than Rs. 50 lakhs.
Co-borrowers and joint owners: This benefit is available to co-borrowers who are joint owners too. They can avail the same benefits as the primary applicant under Section 80C and 24B. So for the section 80 C deduction it will be Rs. 1.5 lakh per applicant and under Section 24B it will be Rs. 2 lakh per person.
Careful financial planning can help you save tax on your home loan and if you are a responsible borrower it can boost your CIBIL score as repayment history is an important aspect of CIBIL Score calculation.
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