The Government of India lets its residents get respite from tax obligations to an extent if they diligently repay their home loans. Several sections of the Income Tax allow these tax benefits on both the principal and interest section of housing loan EMIs. Individuals must know these to reap the benefit of a long-term tax deduction on home loans.
Income Tax Benefits on Home Loan
Before knowing the tax benefits, individuals should understand that the Equated Monthly Instalment (EMI) of a loan consists of two parts. These are interest and principal components. Individuals can avail tax deductions on both these components separately.
Following are some of the income tax benefits individuals will get on their housing loans:
1. Deduction on interest section of housing loan
According to Section 24B of The Income Tax (IT) Act of India, individuals can leverage tax deductions on the interest component paid through EMIs in a financial year. The limit of this tax deduction is Rs.2 lakh.
2. Tax benefits in joint home loan
If individuals take joint home loans, co-applicants can get the tax deduction according to Section 80C and 24B individually. If two individuals take house loan, their cumulative maximum tax benefit will double. In this regard, individuals may also need to know all the other benefits of taking a joint home loan.
3. Deduction on the principal component of housing loan
Section 80C of the IT Act of India lets borrowers of housing loans enjoy the benefit of the tax deduction for up to Rs.1.5 lakh on the principal component. It considers the total principal amount repaid in a financial year through EMIs.
4. Inclusion of stamp duty and registration charges in tax benefit
Individuals can also claim a tax deduction on the stamp duty and registration charges under Section 80C. Although this Section also includes home loan principal section, the maximum deductible income will not exceed the cap of Rs.1.5 lakh.
5. Tax benefit for first time home buyers
When buying their first house, individuals can get an additional tax deduction for up to Rs.50,000 on the housing loan interest component according to Section 80EE of the IT Act of India. Nevertheless, individuals will not be able to reap this benefit if the purchasing price of that house crosses Rs.35 lakh. Alongside, individuals intending to own a residential property should also be aware of how to buy a home with a low down payment.
All these are the benefits of a home loan on income tax. Individuals can leverage these by filing income tax returns (ITRs) on or before the due date of a financial year.
So, individuals in need of financial assistance to construct their houses can go for a home loan. It will help them meet their credit shortages as well as reap the tax benefit.
Individuals should conduct thorough research to get the lowest housing loan interest rate from the market. Furthermore, it is necessary that they meet all the eligibility criteria for home loans properly. Else, it will become difficult for them to bag the attractive interest rates.
Furthermore, there are a few lending institutions in India that help their customers meet emergency financial shortages with pre-approved offers. These tailored deals on credit can significantly expedite the loan application process. Customers can check their pre-approved offers on financial products like home loans and loans against property by entering their names and contact details.
In conclusion, the IT Act of India lets individuals enjoy tax benefits on the principal and interest section of housing loan instalments. Individuals need to claim all these benefits while filing their ITRs. It will help them reduce their taxable income in a financial year.