Everyone dreams of having their own home. The Indian government offers a number of tax incentives for home loans. Under the Income Tax Act of 1961, citizens are encouraged to invest in real estate.
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These advantages help you better manage your financial flow as well as lower your tax liability. Understanding all of the home loan tax benefits is crucial since doing so can enable you to significantly reduce your tax obligations.
Principal repayment and interest payments are both a part of a mortgage. Tax deductions are allowed for both of these groups. Sections 80C of the Income Tax Act of 1961 permit a deduction for principal repayment of a mortgage, while Section 24(b) permits a deduction for interest payments.
The most straightforward method to calculate your tax benefits on a mortgage is to use a home loan premium calculator.
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Here is an explanation of 7 ways to avail of tax benefits on home loans
1) Section 80C home loan tax exemptions for principal payments made on a loan:
Each year, a maximum of Rs 1.5 lakh in principal payments may be deducted from the borrower’s taxable income.
- Self-occupied and rented homes are not excluded from this tax.
- Additionally, stamp duty and registration fees are included. As a result, each person is only permitted one claim.
- Only once the real estate has been fully completed is a claim possible.
- After moving into a new house, this benefit cannot be used for the first five years.
- In the same year as the sale, an exemption that was requested within five years of receiving ownership of a residence will be invalidated. They will also include in their profits the money from the selling of the residence.
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2) Tax benefits on the settlement of interest for home loans under Section 24
Additionally, eligible for tax exemption is the amount of interest paid on a home loan.
- Debtors who pay interest on their mortgage debt are eligible for a deduction under section 24(b) of the Income Tax Act. A person who has lived in their home for at least a year is eligible for a tax exemption of up to Rs. 2 lakh per year from their gross income.
- More than Rs. 2 lakh in home loans cannot be written off by a person who owns two properties in a single fiscal year.
- The amount of interest that can be claimed is unlimited if the home is rented out. If they rent out their house to pay for building costs, repairs, renovations or home extensions, they may get a tax exemption.
- The greatest loss a person may incur under the Earnings from Property Act is Rs. 2 lakh.
- For a period of eight years, the remaining loss from the house may be carried forward to recalculate the earnings from the property.
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3) Tax benefit on interest payments made while the property is being built:
The interest on a homeowner’s housing finance loan is excluded during construction of their home.
- The Income Tax Act of 1961 permits the deduction of both before- and after-construction period interest.
- Interest for the period prior to the construction period is free from payment starting in the year that construction is completed and is distributed in five equal annual instalments.
- A taxpayer may deduct 1/5 of the interest earned during the before-construction period plus interest collected during the after-construction period in accordance with Section 24(b).
4) Section 80EE’s tax exemption for home loans
If a first-time buyer satisfies the following criteria, they may be eligible for income tax exemptions on the interest paid on mortgage debt:
- This exemption will only be allowed if the total amount of the borrowed funds is up to 35 lakhs and the cost of the property is less than 50 lakhs.
- The loan application must be made between April 1, 2016, and March 31, 2017, in order to be considered.
- As long as the loan reimbursement is made, it would be possible to take advantage of this deduction.
- Starting with the fiscal years 2016–17, exemptions under this programme will be available.
Additional Tip: Homeowners can save more tax by purchasing home insurance.
5) Interest on Home Loan: Housing Loan Tax Benefit (First-Time Buyers) under Section 80EEA
For interest on their home loan, they are also eligible for a deduction of up to Rs 1.5 lakh. The following requirements must be met in order to qualify for the Section 80EEA home loan tax benefit:
- Loans are available to consumers who desire to purchase residential properties from financial institutions or home finance firms.
- Between April 1 and March 31, 2022, loan approval should occur.
- Residential property should not have a stamp duty value that is higher than Rs. 45 lakhs.
- Individual taxpayers must not be able to use the current Section 80EE.
- An individual must be their primary residence in order to be eligible for this tax credit. Furthermore, no residential real estate must be owned by the borrower at the moment the debt is approved.
- If they own a home and pay their debts on time, both spouses are eligible for the tax exemption.
- Section 80EEA is available to both inhabitants and non-residents.
- The requirement that a residential property be self-occupied in order for the exemption to apply is not stated explicitly in the clause. As a result, even though possession is not possible, several exemptions are still available.
6) Joint Home Loans on Interest and Principal Amount Payment under Sections 24 and 80C
When a home loan is obtained jointly, each borrower is qualified to deduct their interest payments on the loan up to Rs. 2 lakh under Section 24(b) and their principal repayments up to Rs. 1.5 lakh under Section 80C.
- When compared to a home loan taken out by a single person, this doubles the number of deductions that are possible.
- Both applicants must, however, have made all of their EMI payments and be joint owners of the property.
7) Tax Advantages for Second Home
The following tax advantages are available if you borrow money to buy a second home:
- According to current laws, there are tax advantages for interest that is due. The Income Tax Act of 1961 permits a deduction for the entire amount of interest that was paid.
- As part of the 2019 Union Budget, the government increased its incentives for real estate purchases. A second home was formerly considered to be rented out and its notional rent was computed and taxed as income because only one property could be recognised as self-occupied. But now that the change has been made, even a second property might be regarded as a self-occupied property.
In addition to house loans, there are numerous more ways, like home insurance, to lower your tax obligations while saving money, which can eventually increase your overall net worth
A home loan does have a cost, but if you utilise it effectively, you can minimise your debt and maximise your tax deductions.The majority of these tools can be utilised for investing purposes as well, which reduces expenses and boosts revenue.
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