The present economic scenario where income has taken a backseat for a majority of Indians, most are on the lookout for ways to improvise their financial planning. Under such circumstances, prudent measures undertaken to cut down on expenses or increase monthly savings will be instrumental in providing immediate liquidity reliefs.
One such scope of financial planning and management is available through home loan tax benefits under various sections of the Income Tax Act, 1961. While the scope of discussion here remains within the purview of tax benefits available under Section 24(b) of the Act, here’s a brief overview of these benefits before going to further details.
Tax benefits on home loans – A quick look
Income tax benefits, in general, allow individuals to reduce their taxable income, thus helping them save on the total tax payable to the Government of India. The Central Board of Direct Tax (CBDT) amends and revises these benefits under various sections of the I-T Act as per policy changes.
Tax benefits on housing loans are among the most critical exemptions that leave scope for sizeable savings. Home loan borrowers can thus avail these benefits primarily under Sections 24(b), 80C and 80EEA.
Tax benefits under Section 24(b) are available as annual exemptions. Home loan borrowers can claim for interest paid to lenders towards the advance. As such interest payment is a component of EMIs and difficult to distinguish manually, borrowers can take the help of a home loan tax benefit calculator available online to estimate the amount they can claim as such exemptions.
Tax benefits under Section 24(b) of the I-T Act explained
Borrowers can avail tax benefits on home loans under the following conditions.
- Residential property purchase – Any individual who has availed a home loan can claim exemptions u/s 24(b) of the I-T Act during income tax calculations to the following extents. The exemptions are allowed towards interest payment on the loan.
- For a self-occupied residential property: Tax exemptions for a residential property purchased with the home loan and self-occupied are available up to a maximum of Rs.2 lakh until tenor completion.
- For residential property let out for rent: If the residential property so purchased is let out on rent, interest paid towards the home loan is 100% tax-deductible yearly.
- Joint home loan availed – In case the residential property is purchased with a joint home loan, both the co-borrowers are eligible to avail tax benefits on a joint home loan under this section.
For a self-occupied residential property, a maximum of Rs.2 lakh is allowed as a deduction to both borrowers individually. Similarly, for a let out residential property, 100% of the interest paid can be claimed as a deduction by both.
However, it is noteworthy here that these home loan tax benefits are possible only if both contribute individually and equally towards EMI payments.
- Deductions for property under construction – As for home loan tax benefits for an under-construction property, the pre-construction interest can be claimed as an exemption after completion in 5 installments equally. It, however, remains within the maximum limit of Rs.2 lakh.
Alongside, some other noticeable factors for such deductions include –
- The deduction is applicable only on fully constructed property, and after the construction is complete.
- If the property is sold within 5 years of possession, the benefit u/s 24(b) is reversed.
While this was all about home loan tax benefits, those planning to finance their house purchase can seek lenders offering competitive interest rates for accelerated savings. Existing borrowers can seek to refinance their loans by opting for a balance transfer facility with a lender providing friendly terms at a minimal cost.
As for benefits on home loans, initiatives like lender comparison make borrowing more affordable. Advantages like tax benefits only enhance one’s savings and can prove crucial during liquidity crunches.