5 Tax Benefits You Must Know About Home Loan
Taking out a loan can be a pretty frightening prospect. You’re essentially taking on a big liability, and you have to pay interest on the principal amount as well. So how can you save money on a Home Loan? With tax benefits.This article will discuss the deductions and benefits that you become eligible to when you purchase your house with a Home Loan.
Understanding Tax Benefit on Home Loan
There are a number of deductions you can avail on your Home Loan.
Typically, when you take a Home Loan, you repay it through equated monthly instalments. This is also when you pay the interest accrued on the principal amount. While there are financial institutions like Bajaj Finserv, who offer low-interest rate on their Home Loan, most lenders charge a fairly high rate of interest. This makes your loan that much more expensive.
You can get income tax exemption on Home Loan interest, up to a maximum of Rs.2 lakh for a house that you live in. This means that you can’t claim deductions on a house that is still under construction. When you claim interest deduction, the total interest amount is deducted from your income, so the total amount of taxable income is reduced.
Under section 80C of the Income Tax Act, you can claim repayment of your principal amount up to Rs.1,50,000. So when you file your tax returns, you mention the amount of money you pay as principal on your EMIs and this amount will be deducted from your taxable income.
It’s important to note that if you’re claiming a principal deduction, you won’t be able to sell your house for 5 years. If you do, the principal amount will be added to your taxable income again.
3) Stamp Duty and Registration
If you’re paying stamp duty and registration fees for your new home, then you can claim these expenses as deductions on your income tax for that year according to Section 80C of the Income Tax Act. The maximum claimable amount for this is Rs.1,50,000.
To claim tax benefit on interest on Home Loan, you’ll have to wait till the year your house is completed. However, you can still avail of pre-construction interest deductions in that year as well.
Simply calculate the total amount that was paid as interest during the construction and include that in your tax returns for that year.
However, this will be clubbed with the rest of your interest deductions, so both your pre-construction and current interest deductions cannot exceed a combined total of Rs.2 lakh.
5) Additional Benefits
If you’ve taken a Home Loan with a co-applicant who is employed and co-owner of your house, then both of you can claim deductions for the same loan on your respective incomes. You will both be able to claim interest deduction and principal repayment up to the maximum amounts, individually.
Claiming the Deductions
Here’s a list of the details and documents you’ll need to provide to claim your deductions as part of your tax returns.
Only homeowners are eligible to tax deductions, so you’ll have to provide proof of ownership.
Completion of Construction Date:
Since you can apply for deductions only on a completed house, you’ll need to provide a date of construction and claim pre-construction interest deduction later.
Interest and Principal Details:
Your bank should be able to give you a certificate like the Provisional Interest Certificate provided by Bajaj Finserv against your Home Loan. This is used to calculate your interest and principal every month for that financial year and decides the amount that will be deducted from your taxable income.
So there you have it- all the tax benefits you can get through your Home Loan. Make sure you consider these when you’re filing your tax returns!