The Best Way to Save Taxes With a Home Loan

Buying or constructing a house is one of the most important milestones in a human’s life. Having a home you can call your own can give rise to other aspirations like wedding, travel, and whatnot. 

A home loan is one of the most functional loans offered by lenders, as it allows you to achieve the most significant milestone of your life. With a home loan, you can currently get low interest rates, an extended repayment term, uncomplicated documentation, and quick approval. Additionally, you can save taxes with a home loan. Read on to know how much tax you can save every year by availing a home loan. 

Tax Benefits on the Interest Component

Home loan EMI consists of two components – principal and interest. Indian Income Tax Laws enable you to save taxes on repayment of both the principal and interest. 

Section 24 of the Indian Income Tax Act empowers you to get tax benefits of up to INR 2 lakh for repaying the interest of a home loan. The upper ceiling of INR 2 lakh is applicable for a self-occupied property. If you have let-out your property, there is no maximum limit for tax deductions.

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You can also claim a tax deduction under this section if the house construction gets completed before five years from the date of loan approval. However, if you are repaying home loan EMIs and your house is still under construction, you cannot claim a tax deduction on the interest until the construction of the house is completed. 

Tax Benefits on the Principal Component

Besides tax deductions on interest, a home loan also enables you to get tax benefits for the principal amount you repay. You can get detailed information in the loan amortization chart provided by the lender. 

Under Section 80C of the Income Tax Act, you can claim a tax deduction of up to INR 1.5 lakh every financial year. It deserves worth mentioning that, to get tax benefits under this section, you cannot sell your property before five years from the date of home loan approval. In case you sell your property before five years, the income from the sale will be added to your net income. Besides the principal, you can also claim tax benefits for registration charges and stamp duty. However, the upper ceiling remains capped at INR 1.5 lakh. Also, you can claim such a deduction only once.

Additional Deduction

If your home loan amount is below INR 35 lakhs and the property value is less than INR 50 lakhs, you can claim an additional tax deduction of INR 50,000 under Section 80EEE. Also, you have to be a first-time homebuyer to claim tax benefits under this section. 

Tax Benefits on Joint Home Loan

A joint home loan can enable both applicants to save taxes. If both applicants are co-owners of the property, both can claim tax deductions under Section 80C and Section 24. 

Conclusion

When you combine the current home loan interest rates, which are at their lowest point, with multiple tax benefits, you can save a considerable amount every year. Knowing the tax benefits in advance can help you to plan the home loan amount properly. Ensure that you read the loan terms carefully before signing the application form.