Finance and Money Management

What Income Tax Deductions Can Homebuyers Avail Of On Housing Loans?

Many individuals dream of owning a house, and governments often encourage this by providing incentives through various measures, particularly outlined in the Income Tax Act of 1961. Understanding the intricacies of tax benefits on Housing Loans is crucial, as it can lead to significant savings in Income Tax payments. Let’s break it down:

Section 80C: Principal Repayment

The foundation of tax benefits on Housing Loans lies in Section 80C. This section allows a maximum deduction of up to Rs. 1,50,000 on the principal repayment component of EMIs. Importantly, this deduction becomes applicable only after the residential property’s construction is completed.

If you sell your property within five years from the end of the financial year in which possession is obtained, the previously gained benefit might be subject to reversal.

Section 80C Extended

Expanding the scope of Section 80C, homebuyers can also claim a deduction for stamp duty and registration fees within the overall limit of Rs. 1,50,000 applied to principal repayment. This benefit can be availed regardless of whether you opt for a housing loan, but only in the year these expenses are incurred.

Section 24B: Interest Deductions

The melody of tax benefits continues with Section 24B, governing deductions on the interest paid on Housing Loans. A homeowner can claim a maximum tax deduction of Rs. 2,00,000 annually for a self-occupied house, provided the construction or acquisition is completed within five years.

If the property is rented out, the homeowner can claim the entire interest paid on the Housing Loan without any time constraints on the completion of construction. The set-off of loss under the heading ‘income from house property’ is restricted to Rs. 2,00,000 in a given year.

The Under Construction Phase: Interest Deductions Unveiled

Deductions take an exciting turn when dealing with under-construction properties. Purchasing an under-construction property and paying EMIs allows homeowners to claim interest deductions after construction completion.

According to the Income Tax Act, the deduction encompasses both pre- and post-construction period interest. Notably, a claim about the pre-construction period is allowed as a deduction in five equal annual instalments commencing from the year the property is acquired or constructed.

Exploring The Possibility Of Joint Home Loans

Joint endeavours in Home Loans offer advantages beyond companionship. Regarding Income Tax deductions, if a Housing Loan is taken jointly, each borrower can independently claim deductions. Under Section 24B, each co-borrower can avail of an interest deduction of up to Rs. 2,00,000. Under Section 80C, a conclusion on principal repayment of up to Rs. 1,50,000 is allowed, effectively doubling the quantum of deductions available compared to a Housing Loan taken by a single applicant.

Notably, both co-applicants must be co-owners of the property and contribute to servicing the EMIs. This collaborative approach fosters financial synergy and optimises the available tax benefits.

Tax Benefits on Second Home Loans

Contrary to common belief, tax benefits on Housing Loans also apply to second homes. In the Union Budget 2019, the government introduced incentives to encourage investment in multiple properties.

Previously, only one property could be treated as self-occupied, while a second property was considered let out, and notional rent was calculated for taxation. The updated stance allows even a second property to be considered self-occupied, relieving the burden of notional rent taxation. Homebuyers with a second Housing Loan can still enjoy tax benefits, though the total deductions are subject to predefined caps mentioned earlier.

Housing Loan EMI Calculator

A Housing Loan EMI calculator helps homebuyers by offering insights into monthly EMI payments and the distribution between principal and interest components. Utilising a housing loan emi calculator not only facilitates informed decision-making but also aids in optimising tax planning. Understanding the implications of varying loan amounts, interest rates, and tenures can help homeowners strategically structure their Housing Loans to maximise tax benefits while ensuring financial prudence.

Conclusion

Homebuyers can make informed decisions using Sections 80C, 24B, and other related sections and strategic insights from Housing Loan EMI calculators. By leveraging the available tax benefits, they will not only be able to fulfil their dream of owning a house but also embark on a journey of financial prudence and security.

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