Buying your own house is indeed a dream come true. And if you have taken a home loan, you gain an added advantage of availing tax benefits.
Worried about your significant tax outgo every financial year? Tax benefits from your home loan can reduce it considerably, especially if you are paying a huge EMI (equated monthly installment). Irrespective of whether the EMI is small or big, you save on tax from your home loan.
According to Income Tax rules, under Section 80C, you can claim up to Rs. 1.5 lac from the Home Loan EMI payment towards principal deduction. Deduction on interest can be claimed as exemption under Section 24. If it is a self occupied property, you can avail maximum tax exemption of Rs. 2 lac for interest. There is no limit if the property is not self-occupied. If the loan is taken for repair or reconstruction, deduction is Rs. 30,000.
You should furnish documents as owner of the property in question as well as proof of borrowing loan when filing returns. To avail tax benefits from your home loan for an under construction property, you should furnish a completion certificate that verifies that your home is fully constructed. Construction should be completed within five financial years from the disbursement of the loan. Ensure that you have an interest certificate from your lender to claim deduction for interest on your loan.
Here is a list of all the deductions that can be claimed:
On Stamp Duty and Registration Charges
Buying a home involves multiple expenses including paying processing charges, registration fees, stamp duty payment, and more. Do you know you can claim deduction on stamp duty and registration fees pertaining to your property on home loan?
Section 80C allows deduction within the overall limit of Rs. 1.5 lac. Ensure that you claim it within a year of paying the amount. Deduction cannot be claimed beyond this time limit.
On Principal Repayment
Under Section 80 C, deduction of a maximum of Rs. 1 .5 lac is allowed on principal repayment. It is the principal portion of the EMI paid for the year. Deduction cannot be claimed if the property in question is sold within 5 years of possession.
If any deduction is already claimed and the property sold beyond the prescribed time of 5 years, the same would be added back to your income.
On Interest Paid
What is the rate of interest you are paying for your home loan and how much do you pay as EMI every month?
The EMI of a housing loan includes both interest and principal repayment. You can claim deduction on the interest paid over a financial year, year after year, while filing your tax returns.
The limit of deduction is a maximum of Rs. 2 lac for self occupied homes. There is no upper limit for ‘let out’ properties. If your property is under construction, you cannot claim deduction until it is completed. Tax authorities have set the time limit for completion of construction to 5 fiscal years.
For Joint Home Loan
Many home buyers add co-applicants to their housing loan. The Income Tax Act entitles both applicants to tax benefits. Each of the two applicants can claim deductions on principal repayment, interest paid, stamp duty and registration fees while filing individual tax returns. Deductions are subject to terms and conditions, as already pointed above.
For example, to claim deduction on stamp duty and registration fees, the claim should be made within a year of the payment made towards the same. The maximum deduction limit is Rs. 1.5 lac. To claim deduction on principal amount, the house should not be sold within five years of possession. The maximum amount that can be claimed is Rs. 1.5 lac.
The joint applicants should be joint owners of the property to claim deduction. If only one is the owner and the other only an applicant, the latter shall not be entitled to any deductions related to the property in question. Thus, joint owners are entitled to larger tax benefit compared to single owners.
Additional Benefit for First Time Home Buyers
Have you bought a home for the first time with a home loan? First time home buyers gain an added advantage on tax. Under Section 80 EE, first time buyers of dwelling can claim additional deduction. The maximum claim amount has been set to Rs. 50,000. There are certain terms and conditions for every deduction claimed. Given below are the terms and conditions for this tax benefit scheme:
· This facility is available for home loans sanctioned during or after FY 2016-17.
· The amount of loan taken should not be more than Rs. 35 lac and the value of the property should not exceed Rs. 50 lac. If the loan amount and value of property exceeds beyond these, no deductions can be claimed. For example if you have borrowed Rs. 36 lac from your lender and the value of your property is Rs. 55 lac, you cannot claim deduction as a first time home buyer.
· You should not sell your property within 5 years of possession.
· Only an individual tax payer can claim deduction.
· As a first time home buyer, you should not have any residential property in your name at the time of buying. If you had a home earlier but no home while buying the present property, you can claim deduction as a first time buyer too.
Section 80EE first came into force for two years, i.e. financial years 2013-14 and FY 2014-15. Since fiscal 2016-17, it has been made a regular feature.
How do you go about saving tax the smart way on your housing loan? Read the fine details of your housing loan account statement. Calculate how much amount from your EMI goes towards principal and how much towards interest.
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