Income Tax Saving Tips: Know six ways by which you can save tax with home loan – know six ways you can save income tax with home loan
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Tax benefit on loan for under construction property
If you are looking to buy a ready-to-move-in property or a property that is under construction, then a loan against under construction property is an ideal option for you. The EMI of this loan typically has two components – the principal amount and the interest. You can claim tax deductions under various sections of the Income Tax Act for both the components of the loan against under construction property.
Tax benefit on home loan interest payment
If the loan is taken for a fully constructed house or property, borrowers can claim tax deduction on the interest portion of their EMIs. This deduction is available to the extent of two lakh rupees under section 24B of the Income Tax Act (IT Act). But, you can avail this benefit only if you start living in the property. It means that you have got its possession. Worth noting here is that you can claim the deduction for the pre-construction period. Under the Income Tax Act, you can claim tax exemption on the interest paid during the construction period starting from the year of acquisition of the property. You can do this in five equal installments after the construction is completed. Note that the overall maximum limit for these deductions is Rs 2 lakh.
Tax Deductions on Home Loan Principal Repayment
Home loan borrowers can claim an annual deduction of up to Rs 1.5 lakh in respect of their home loan principal payment under Section 80C of the Income Tax Act. Remember, if you sell the property within five years of taking possession, the deduction will be added to your income in the year in which you sell it.
Tax Deductions on Excess Charges
There are additional costs associated with the purchase of any property. Such as stamp duty and registration charges. A one-time deduction of such costs up to a maximum of Rs 1.5 lakh is allowed under Section 80C of the Income Tax Act. You can avail this deduction in the year in which you have incurred these expenses. In case of a property bought jointly, both the owners can claim deduction relating to additional charges up to Rs 1.5 lakh.
Tax benefits under other sections of the Income Tax Act
Home loan borrowers can also explore section 80EE and 80EEA for additional tax deductions. For example, you can claim an additional deduction of Rs.50,000/- under Section 80EE if you are a first-time home owner and satisfy two specific conditions. The first condition is that your loan amount and property value should not exceed Rs.35 lakh and Rs.50 lakh respectively. Second, this deduction is applicable only on home loans that have been taken during the financial year 2016-17. Additional deduction of up to Rs 1.5 lakh is available under Section 80EEA to home loan borrowers whose loans were sanctioned during April 1, 2019 to March 31, 2022. But, to avail this deduction the borrowers must fulfill certain conditions to avail certain deductions. Firstly, the value of the property should not exceed Rs 45 lakh, and secondly, the home loan should be taken by the borrower for the first time. The borrower availing the benefit under this section will not be eligible for deduction under section 80EE of the Income Tax Act.
Tax benefits for joint home loan
The above mentioned tax benefit provisions are also applicable to Joint Home Loans. Joint home loan offers an important additional benefit – both the borrowers can claim deduction up to the maximum permissible limit ie Rs 2 lakh. But, remember, the co-borrower must be registered as one of the owners of the property to claim this benefit.
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