Home loans are a unique financial product, offering extended repayment tenure, competitive interest, and the provision for a balance transfer. Borrowers who have availed a home can also claim tax deductions against the continuing debt.
However, individuals who are repaying a home loan may miss out on the latest tax benefits of the same. Here are the home loan tax benefit that may be claimed concerning an ongoing home loan in the financial year 2020-21
Different tax benefits on home loan repayments
Tax exemptions are largely categorised under a few components – tax benefit on repaid principal, tax benefit on interest paid, tax benefit under Section 80EE of Income Tax Act, 1961 and deduction on stamp duty and registration charges. These benefits can be availed only if borrower conforms to the home loan eligibility criteria.
Tax benefit on repaid principal
Under Section 80C of the Income Tax Act, 1961, tax exemption of up to Rs.1.5 lakh can be claimed for the principal repayment of home loan. Such home loan can be availed for construction or purchase of a residential property.
However, loan repayment for a property under construction comes with specific conditions explained here. Such a property should be completed within 5 years from the financial year-end since the time such a loan has been taken. Moreover, if the same property is transferred or sold within that 5-year period, the claimed tax deductions shall be reversed.
It means that the deducted amount would be added to a borrower’s income in that year, and will be taxed under the appropriate slab. The borrower may use the home loan tax benefit calculator to gain an idea on the savings made herein.
Tax benefit on interest paid
Tax exemption of up to Rs.2 lakh can be claimed on the repaid interest both in the pre-construction and post-construction period. It is applicable under Section 24b of the Income Tax Act, 1961. This deduction of Rs.2 lakh can be claimed from the paid interest in post-construction period with respect to a self-occupied property.
For a property that has been let-out, there is no upper limit to claim a deduction over interest. However, such benefit is applicable only from the year of the completion of construction of that house. The EMI may be calculated in a home loan EMI calculator.
In most cases, properties are purchased when it is still under construction. Borrowers receive possession of the property at a subsequent date. It should be noted that repayment of the debt starts right after availing the loan. In such instances, home loan tax benefit for an under-construction property can be claimed on the interest that has been paid during the pre-construction phase for 5 years.
Tax benefit under Section 80EE
The Government of India has given much impetus to the mission of ‘Housing for All’ under PMAY. Under the scheme, an additional deduction can be availed on the payment of interest on home loan as per one’s qualification under the scheme.
However, such a loan must have been taken out between April 1, 2019, and March 31, 2020. For qualification of tax deduction under Section 80EEA of the Income Tax Act, 1961, the property valuation has been restricted at Rs.45 lakh. Moreover, only a first-time homebuyer is eligible to avail of this benefit. There are also specific tax benefits on home loans for women. These are a few tax-saving advantages offered by home loans.
Other than that, such credits also offer several other benefits. Leading financial institutions extend pre-approved offers to customers to make the process of availing loan much simpler.
Such an offer includes various financial products, including home loans and loans against property. Check your pre-approved offer online by providing few basic details such as name and contact number.
Home loan tax benefits can also be claimed on registration charges, stamp duty and other associated expenses which are directly connected to property transfer. These expenses should incur while buying the property only. The claim is capped at a limit of Rs.1.5 lakh under Section 80C of the Income Tax Act, 1961. This deduction can be claimed only in the
the specific year when such expenditure has been incurred.