All you need to know about Home Loan Tax Benefits
As per the Reserve Bank of India, the home loan market has expanded 0.8% between April and August 2020. While the rapid consumption and attractive interest rate are responsible for this growth, taxpayers can also benefit from home loan tax benefits by choosing this credit option.
The Government of India has introduced several provisions that allow individuals to save substantially on tax payment while availing a home loan. Thus, individuals should learn about the articles and sections of the Income Tax Act, 1961 that allow them to avail tax benefits on a home loan.
Following are the provisions where one can claim for tax benefits on a home loan.
- Interest payment
Individuals avail a home loan with a pre-specified tenure within which they have to repay the same. The repayment includes both principal and interest components. Individuals can avail home loan tax benefit under section 24(b) on their taxable income up to Rs.2 lakh. The deductions are available both on self-occupied and let out properties. However, there is no cap on let out property.
- Interest payment during pre-construction period
Home loan borrowers cannot claim for tax benefits against an under-construction property. They only can claim for the tax benefits on home loan interest when the construction is over. In this case, also, they can file for deductions of up to Rs.2 lakh on interest under section 24(b). Thus, individuals who still have not moved to their property and the construction is going on, need to know everything about home loan tax benefits for under-construction property.
- Principal payment
Home loan borrowers are also eligible to claim tax deductions of up to Rs.1.5 lakh on principal amount under section 80(c). In this case, they cannot sell the property within 5 years from the day of purchasing the property.
- Registration charges and stamp duty
Under section 80(c), individuals can also claim for home loan tax benefits on stamp duty and registration charges of up to Rs.1.5 lakh. However, they have to make a claim in the same financial year of expenses incurred.
- Section 80EE
The first time home buyers can also avail additional tax benefits on interest payment of up to Rs.50000. They are entitled to get the benefits on and above section 24(b) and 80(c).
- Section 80EEA
New home buyers can also claim for tax deductions of up to Rs.1.50 lakh on interest payment under section 80EEA. However, in this case, they have to meet certain eligibility. For instance, they must not avail tax benefits under 80EE, they must not have another home and the stamp duty of the purchased property should not exceed Rs.45 lakh.
- Joint home loan
Under the Income Tax Act, you can avail tax benefits on a joint home loan. In this case, each of the co-owners can claim for tax deductions of up to Rs.1.5 lakh on principal payment and Rs.2 lakh on interest payment, in every financial year.
To avail home loan tax benefits, borrowers also have to submit some essential documents.
Documents to claim tax benefits on home loans
Following is the list of documents that you have to submit to be eligible for tax benefits on a housing loan.
- Ownership details of purchased property
- Loan certification that clearly shows the break-up of principal and interest components of EMIs.
- Documents showing that the construction of the property is completed.
- The owner(s) of the property is a taxpayer.
- Receipt of municipality tax for the year.
Some reputed housing finance companies extend credit of up to Rs.3.5 crore with property dossier and minimal documentation. Individuals can also claim tax deductions on principal and interest repayment while servicing the loan.
They also provide pre-approved offers that expedite loan processing and make it simple. Such offers are also available on a range of financial products such as loans against property and home loans. You can also check your pre-approved offer by entering your name and contact number.
Thus, a home loan not only provides individuals with financial support to purchase their dream property but allows them to save significantly on tax payable.