Most of us are aware that when we take a home loan we are eligible for some Income Tax deductions based on the principal amount and interest of the loan. However, most of us don’t know what other deductions we are eligible for. Here are a few tips to avail some less obvious tax benefits on your home loan.
Section 80C: Repayment on Principal Amount
The maximum tax benefit that can be availed under this section is Rs.1, 50,000/-
1. Expenses such as registration and stamp duty charges are eligible for tax deduction only in the financial year that the expense was incurred. So ensure your registration is done in the January to March quarter. From the next year you can claim the full principal and other investments in this section like PPF can be postponed.
2. Benefits under this section can only be claimed once the construction of the house is completed.
3. If you sell the house within five years of taking possession, the deductions claimed on principal amount is reversed. The amount deducted earlier is considered income the year you sell the house and is taxed accordingly. The deductions against the interest are not reversed.
4. Often people buy credit insurance. This means that the insurer will pay your outstanding loan in case of your death. The premium on credit insurance is eligible for deduction under this section.
5. In case of a joint home loan, each of the co-borrowers can separately claim deductions against the principal amount in proportion to their EMI share. E.g. – If the EMI has been divided equally, each co-borrower can claim up to Rs.1,50,000/-
Section 24: Repayment on Interest
If you or your family members live in the house you have bought or the house is vacant (self-occupied) you are eligible to claim deductions up to Rs 2lakh. If you have rented the house, you can claim the entire interest as a deduction.
1. To claim the 2lakh amount the loan must be for the buying or construction of a new property. Also the construction must be completed within 5years from the year the loan was taken.
2. If the construction is not completed within 5 years you will only be entitled to a deduction of Rs.30, 000/-
3. If the loan has been taken for reconstruction, repairs or renewal, then too you are only entitled to a deduction of Rs.30,000/-
4. Another important point is that the deduction on the principal amount can be claimed only once the construction is completed. For the pre-construction period you can only claim the interest portion. The interest deduction (for both pre-construction and post-construction periods) claimed can’t exceed Rs. 2 lakh in a year.
5. If you own more than one house, only one will be considered self-occupied. The rest are considered rented even if they are not.
6. In case of a joint home loan, each of the co-borrowers can separately claim deductions against the interest in proportion to their EMI share. E.g. – If the EMI has been divided equally, each co-borrower can claim up to Rs.2,00,000/-
7. Even interest on a loan from a friend or family member can get you tax deductions if the person from whom you have taken the loan issues a certificate stating that you have paid the interest for that financial year.
Section 80 EE: First Time Buyers
First time buyers get an additional deduction of Rs. 50,000/- over and above the deductions under section 24 and section 80C.
1. The deduction is allowed only if the value of the property purchased is less than Rs 50 lakh and the value of the loan sought is less than Rs 35 lakh.
2. The benefit is available till the loan is repaid completely.
You can even claim deductions if you have delayed payments against your home loan EMI but penalties for the same are not included.
If you plan to take a home loan, these tips should be handy. Consider all your options before taking out a loan and it will save you a lot of money!