For most, purchasing a Kotak home loan or Federal Bank Home Loan or home loan from other lenders is a dream. Staying in your self-owned house, no matter how small or big it is, is a thoroughly satisfying experience. Homeownership even enhances your stability and sustainability. You no longer need to fret about repaying your monthly rent or searching for a new home every time you are asked to vacate a property.
Having said this, it is not simple to purchase a home in India. You require arranging a huge amount of funds to purchase a housing property. Based on the location and size of the property, its expense can instantly run into a few lakhs or crores. A home loan can assist you in arranging the necessary funds to meet your dream of becoming a homeowner.
There are various benefits of using a home loan to purchase a home. The most crucial thing is it permits you to buy your dream house and pay for it in simple EMIs disseminated over a long repayment tenure of as high as 30 years. Moreover, it protects you from purchasing fraudulent property as lenders generally check all your property documents before home loan disbursement. However, do you know you even need to avail income tax benefits through a home loan? Indian Government has permitted specific home loan tax exemption as per Section 80 C, 24 B and 80 EEA of the IT Tax Act of 1961. You can get these tax rebates on a home loan while filing your ITR.
Home loan tax benefits –
There are 2 basic components of a home loan – the interest component and the principal constituent. The home loan EMI that you pay towards the home loan contains both components. Home loan tax benefits are available against the repayment of principal and interest on the home loan.
Listed below are home loan tax benefits available as per sections of the income tax act of India –
Home loan deduction for repayment of a principal constituent –
As home loan borrowers, you can take the Kotak Home Loan exemptions for repaying the principal constituent of your home loan. Amount paid as repayment of a principal constituent of a home loan by an individual borrower or HUF is available for deductions as per Section 80 C of the IT Act. The maximum deduction permitted as per this section is Rs 1.50 lakh.
As per Section 80 C, however, you will even be permitted to lower your investments in various other tax-saving investments like PPF (public provident funds), ELSS (equity linked savings scheme), and NSC (national savings certificate) and SCSS (senior citizens savings scheme).
An important point you must note is that tax benefits on home loans for repayment of principal components are available just if the home construction has been done. Zero tax deductions are permitted under this specific section for principal amount repayment during the years for which your home was under construction.
Moreover, if you transfer the home ownership within 5 years of its buy, you are claiming under Section 80 C would not be possible. Also, the deduction per this section is available only if you make the investment or payments in an applicable financial year.
Home loan tax advantages for repayment on the interest constituent –
You can even avail the home loan tax benefits for making repayment of the interest constituent on your home loan. Any amount paid as repayment of interest constituent of home loan is available for the tax deduction as per Section 24 of IT Act. The maximum tax benefit allowed in a financial year is Rs 2 lakh. However, it is necessary to remember that this tax exemption is available just on self-occupied home properties. According to Section 24, any income from the home property for which the home loan has been availed must be reduced from the paid amount as interest on the home loan, and tax deduction would be computed accordingly.
Also, it is necessary to note that home loan tax benefits as per Section 24 are deductible on an accrual or payable basis. This means that you can simply claim the deductions on tax as per this section even if you have not made any payment during the financial year. It is contrary to Section 80 C, which permits tax deductions just on a payment basis.
Additionally, if the property is not constructed or acquired in 5 years after the end of a financial year in which the loan was taken, the maximum tax benefit permitted as per Section 24 would be lowered to Rs 30,000 from 2 lakh.
Income tax deductions for the 1st time homebuyers –
In case you are a first-time home buyer, then you can get an additional tax benefit as per Section 80 EEA of the IT Act. As per this section, a deduction of as high as Rs 1.50 lakh is permitted for the home loan borrower who is purchasing their first home. This tax deduction was brought into the IT Act in the Union Budget 2019. However, tax deductions as per Section 80 EEA are available in the listed cases only –
∙ If the value of bought property stays within Rs 45 lakh.
∙ If the home loan is sanctioned between 2019 and 2021.
Besides these, a tax deduction of as high as Rs 50,000 is permitted under Section 80 EE of the IT Act for the first-time home loan buyers availing of a home loan of Rs 35 lakh.
Deduction on the registration fee and stamp duty –
When you buy a residential property, you are required to make the payment of the registration charges and stamp duty to the state Government. You can take up the tax deduction for paying such charges for the acquisition of home property. These charges are generally not involved in home loan proceeds sanctioned by lenders.
Tax deduction for the registration and stamp duty charges are permitted as per Section 80 C of the IT Act for an amount of up to Rs 1.50 lakh. You can claim the tax deduction just in the financial year where you have made the payments.