Everything You Need to Know about Home Loan Tax Benefits |
Posted: August 27, 2016 |
Buying a property to call your own is everyone’s dream. For anyone buying their first property, real estate jargon can seem to be overwhelming; especially if you don’t have enough savings to finance the purchase yourself. That’s why opting for a financing alternative like a Home Loan is a great choice. With banks and NBFCs offering extremely competitive Home Loan rates in India, now might be just the right time for you to take the plunge. A Home Loan not only provides ample financial cushioning for that big purchase but it also lets you claim higher tax deduction on the repayments you make for the loan. Let’s take a look at the different tax-saving rebates you can take advantage of when you sign up for a Home Loan from any bank or NBFC. Individual Home Loan Applicants Every year, before the financial year closes, you can claim yourself a couple of tax deductions. Under Section 24 of the IT Act, you can get a tax rebate of up to Rs.2 lakh on the interest paid on your Home Loan. And under Section 80C, a maximum of Rs.1.5 lakh can be claimed for tax deductions on the principal amount. This benefit, though, can be availed only if you’re occupying the property or keeping it vacant. The tax exemption rules differ if the property you’ve invested in is under construction. You can claim tax benefits only after taking possession of the property. In case you sell the property within 3 years from date of purchase, the sale proceedings will be considered to be a part of your net income for the year and taxed as per the same under the IT Act. The 2016 Union Budget proposed that the time limit for claiming exemption for under construction properties be raised from 3 years to 5 years after completion. According to the current budget, you can avail tax benefits on the interest within 5 years of moving into your property. The time period begins at the end of the financial year in which the loan was procured. However, this change will only be effective from April 2017. But there’s still reason to cheer, as you can claim tax benefits for pre-interest charges for the same fiscal year even if your property isn’t completed. It can be claimed in five installments over the course of the year. Keep in mind that you can only claim a maximum of Rs.2 lakh in case of a self-occupied property. You can also claim tax deduction on the amount you’ve spent on stamp duty and registration charges for your property. According to Section 80C of the Income Tax Act, the maximum claimable amount for this is Rs.1.5 lakh. Joint Home Loan applicants If the loan amount you’re eligible for isn’t enough to cover the cost of the property, you can apply for a Joint Home Loan. This way you can claim a higher loan amount and share the burden of paying EMIs. You can apply for the loan with your siblings, parents, or spouses. Most banks prefer it when the co-owner of the property is also the co-applicant. When you take a joint loan, just like the EMIs, even the tax benefits get divided amongst the co-applicants. Both co-applicants can claim upto Rs.1.5 lakh on the principal amount under Section 80C and Rs.2 lakh on the interest payment under Section 24C as tax exemption every year. First-time Home Buyers Apart from the benefits mentioned above, there’s an additional tax deduction you can claim as a first-time home buyer. The Finance Ministry introduced an additional tax deduction on the interest charged on Home Loans in the recent budget. You can claim an additional deduction of Rs.50,000 on the interest charges, provided the cost of the property doesn’t exceed Rs.35 lakh. In case you’ve leased out your property you can claim a tax deduction on the entire interest paid over the course of your loan. Multiple Property Owners The Income Tax Act allows you to claim a 30% standard deduction on the total taxable value of your property. This money is generally used to cover maintenance, home insurance, or other house-centric expenses. The interest paid, upto Rs.1.5 lakh, is eligible for tax exemption under the Section 80C of the Income Tax Act. You can also claim the municipal taxes you paid against your rental income during the financial year as a deduction under the ITA, 1961. You need to remember that the deduction is valid only for the current year and not for the year in which the tax invoice was raised. To be eligible for tax deductions on both the principal and interest amount, you can list the property as self-occupied. The maximum rebate you can save on each of them remains at Rs.1.5 lakh and Rs.2 lakh, respectively. The annual rent you receive from a rented property is taxed after deducting the standard 30%, the municipal taxes you pay, and the interest you’re paying on the Home Loan for the property. This deduction doesn’t come with an upper limit, which is why you should make it a point to claim it every year. Availing a Home Loan is just a click away, nowadays, as many banks and financial institutions let you apply for it online. Take some time off to thoroughly research the different types of Home Loans available and trending interest rates. You can approach a financial analyst, or any official in a lending institution, to clear your doubts regarding the loan application procedure. Remember to always apply for Home Loans only when it has reasonable interest rates tied to it, and ensure you are comfortable with the EMIs.
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