For the majority of Indians, becoming homeowners is one of their biggest dreams. The good thing is that the Indian government has always encouraged home ownership. Schemes, such as Pradhan Mantri Jan Dhan Yojana, making it possible for aspiring homeowners to buy a home. Further, home loan tax benefits are designed to enhance home affordability. The focus of this article is home loan tax benefits. Read on to develop a deeper understanding of this topic. Before that, let us start by establishing the basics.
What is a Home Loan?
A home loan is a simple and effective way to afford a home. It is a type of mortgage loan under which the borrower pledges the same property that is being bought. Borrowers repay the loan money in the form of EMIs which constitute a principal component and an interest component. The interest component is the cost of borrowing the loan.
One of the ways governments promote homeownership is by ensuring home loans are affordable for all. Thus, home loan interest rates are always low and provide an affordable route to buy a home. Further, borrowers get to enjoy several tax benefits when they take the home loan route to fund their property purchases. Let us investigate the various home loan tax benefits available to home loan borrowers these days.
Home Loan Tax Benefits Explained
Tax Benefit Available on the Principal Component of the Home Loan
Section 80C of the Income Tax Act deals with the principal component of the home loan. This section states that one can claim exemption up to a maximum of Rs.1.5 Lakh on payments made towards the repayment of the principal component of the home loan. The exemption is not restricted to a single or self-occupied home. If you have taken a home loan to buy a second home, you can claim an exemption on this second home as well, even if it is rented out. However, the maximum benefits under this category have been capped at Rs.1.5 Lakh.
Further, under Section 80C of the Income Tax Act, home loan borrowers can also claim exemption on the money spent on stamp duty and registration fees. However, this exemption can be claimed only once and cannot exceed the upper limit of Rs.1.5 Lakh.
Home Loan Tax Benefits on the Interest Component of the Home Loan
Borrowers can claim deductions on payments made toward interest repayment of their home loan under Section 24 of the Income Tax Act. Under this section of the act, borrowers can avail of
home loan tax benefits on both self-occupied and rented properties. However, the maximum exemption available on all properties combined cannot exceed Rs.2 Lakh.
Tax Deductions Available on Under-Construction Properties
Not everyone wants to invest in a flat or apartment. Some people prefer buying land (not covered under a home-loan) and getting a home constructed on it the way they like. The good news is one can avail of tax benefits for under-construction properties as well. Section 24b of the Income Tax Act deals with such properties. Under this section of the ITA, one can avail of home loan tax benefits on the interest component of the home loan in five equal installments after the completion of home construction.
Tax Deductions in the Case of Joint Home Loan Ownership
The Government of India has been working hard to promote home-ownership by women and one of the ways it does so is by providing joint home loan tax benefits. A joint home loan is a home loan taken by two or more individuals together. The two borrowers can be a husband and his wife or a parent and their (unmarried) daughter. These are the most common combinations, but other combinations are possible too. Check with your lender regarding who qualifies to be a co-borrower.
Lenders not only offer lower interest rates on home loans taken by female borrowers but all co-borrowers who are also co-owners can claim tax exemptions on both the interest component and the principal component of the home loan under various sections of the Income Tax Act. Thus, in the case of a joint home loan taken by a couple, a husband and wife together can claim a deduction of up to Rs.7 Lakh per year on payments made towards home loan repayment which can help one save a lot of money.
Now that we know everything about home loan tax benefits, let us understand a little bit about an income tax calculator and how one can use this tool to the best advantage.
What is an Income Tax Calculator?
The
income tax calculator is an online tool that allows borrowers to know their total income tax liability for a financial year. The calculator tells a user their tentative income tax liability based on the information provided by a user, such as total income, taxable income, deductions available, HRA exemption, etc. Follow these simple steps to use an income tax calculator.
- Select your assessment period.
- Next, specify your gender.
- Enter the information asked for under the ‘Income’ field.
- Enter the information asked for under the ‘Deductions’ field.
- Enter various other details, such as exemptions available.
- After filling in all the details, click on ‘Calculate’ and the calculator will tell you your tax liability in a matter of seconds.
Check Tax Benefits on Home Loans in Simple Steps
If you wish to check the tax benefits available to you on your home loan, you will have to use a home loan tax benefit calculator. These calculators are easily available online and using them is easy. All you must do is enter the year for which you wish to calculate income tax benefits, specify your gender, and disclose your total income as well as the principal and the interest amount you paid on your home loan in that year. Once you enter all the details, the calculator will immediately tell you the total income tax benefit available to you, the income tax payable before the home loan, and the income tax payable after the home loan.
The home loan tax benefit calculator is an easy-to-use tool that is freely available online. So, use it to your best advantage.
