The home loan comes with multiple tax benefits, some of which you might not even be aware of! These deductions not only reduce your tax outgo but also help in managing your cash flow better.
Looking for the ways to determine which tax deductions are available to you as a home loan borrower before taking loan can help you in a huge way. Bank and financial institution also provide special Home loan benefits to woman as well.
Home Loan Benefits
Deduction on interest under Section 24 of Income Tax Act
- Section 24 of the Income Tax Act allow you the tax benefits on home loan for payment of interest. If you are paying EMI, the interest component in the EMI can be claimed as a deduction.
- This deduction can be claimed in the starting of the year in which the construction of the house is completed. The entire interest for the year can be claimed as a deduction in case your house is rented.
- Even if you have missed a few EMIs during a financial year, you are still eligible to claim a deduction on the EMI for the entire year.
Deduction on principal repayment under Section 80C
- The component of your EMI which goes towards the principal is eligible to be claimed under Section 80C of the Income Tax Act.
- The maximum amount of INR. 1.5 lakh can be claimed as a deduction under Section 80C.
- The processing fee is allowed under EMI for the sanctioned loan.
- Prepayment charges and service fee are eligible for deductions under Section 24 of the IT Act.
- Note that there is no tax benefit before you get possession of the house.
- The loan can only be taken for purchase or construction of a new house, not repairs of an old one.
Deduction for first-time buyers under Section 80EE
- This section provides for additional deduction of INR. 50,000 for interest on home loans.
- This incentive will be over and above the tax deduction of INR 2 lakh under Section 24 and 1.5 lakh under Section 80C.
- In order to claim the tax deduction
- You will need to provide the statement from the lender
- Clearly showing the amount payable, and
- The amount paid towards interest and principal.
- The balance income, after the deduction, will be taxed as per the income tax slab rates.
How can you determine which of these deductions will be applicable to you?
- Know the tax benefits before the loan application helps you to determine the tax saving opportunities you are eligible for.
- You can claim the deduction at the time of buying a home.