How can getting a Home Loan help you get benefits on Income Tax?
If you are wondering how to save tax, getting a home loan can be the answer. The Income Tax Act of 1961 has a provision that makes it possible to reduce payable tax money, and the latest financial budget of India accentuates it.
Tax Benefits on Home Loan (The financial year 2021–22)
Union Finance Minister Nirmala Sitharaman has extended the deadline for getting additional deductions on home loan interests in the budget speech to 31 March 2022. The previous budget saw the government extending the deadline to 31 March 2021.
A housing loan can enable one to get their own home, but it is also a financially challenging prospect. However, certain tax benefits come with these loans that can also let one save more money per annum. This article will illustrate how one may avail these benefits to better approach their financial plans.
Tax benefits under the corresponding sections of the Income Tax Act, 1961
Income Tax Act
Maximum Deductible Amount
Section 24
Rs.2 lakh per annum
Section 80C
Rs.1.5 lakh per annum
Section 80EE
Rs.50,000 per annum
New Updates from the Union Budget of 2021–2022 (as of 1 February 2021)
31 March 2022 is the new eligibility period for a claim of additional reduction of interest amounting to INR 1.5 lakh paid for a loan taken for purchasing a buyable house.
31 March 2022 is also the deadline for claiming tax holidays on affordable housing projects.
A new tax exemption has been proposed for the notified Affordable Rental Housing Projects to promote Affordable Rental Housing for migrant workers.
Home Loan Tax Benefits under the auspices of Section 80C — Principal Deductions
The Section 80C dictates the principal amount reductions:
- A maximum of INR 1.5 lakh every year from taxable income on principal repayment may be claimed for both self-occupied and let-out houses.
- In order to make a claim, the construction of the property must be finished. Also, the house may not be sold within 5 years of possession. If it is sold, the claimed deduction would be reversed for the year of selling, and the selling price would be added to that year’s income.
- Income tax benefits will be increased by INR 1.5 lakh on interest payments under the Section 80EE Proposal.
- If the property’s value is under INR 45 lakh, a benefit can be had over and above the existing deduction of INR 2 lakh under Section 24(b). Deductions up to INR 3.5 lakh can be availed.
Deduction for Joint Home Loan:
If two or more people avail of the housing loan, all of them are eligible for a tax deduction — a maximum of INR 2 lakh, on the interest paid. Up to INR 1.5 lakh may be deducted from each, as payable tax from the principal sum.
The deduction may be claimed if all the applicants are joint owners of the property. Hence you can avail of better tax benefits by taking a joint home loan.
Home Loan Tax Benefits that you can get by Owning a Second Property:
The current provisions imply tax benefits are applicable on payable interests. The total paid interest amount may be claimed.
As per the propositions, a second self-occupied home may also be claimed under the provision for further tax deductions.
Necessary process for claiming Tax Benefits on Home Loans:
Step #1: The tax deduction to be claimed has to be calculated.
Step #2: That the house is in your name or you are the co-borrower for the property has to be ensured.
Step #3: To adjust the tax-deductible at the source, submit your home loan interest certificate to your employer.
Step #4: The tax return has to be filed by yourself if step 3 is ignored.
Step #5: Submitting these documents is not necessary if you are self-employed. However, they should still be kept securely in case of future queries by the IT department.
How to Calculate Tax Benefits on a Home Loan?
You must have the following details with you.
- Loan Amount,
- Tenure,
- Interest Rate,
- Deduction Under 80C/D,
- Existing income,
- Loan Start Date,
- Gross Annual Income.
FAQs:
The following questions involving tax benefits on home loans are most frequently asked. They have been explained clearly to give you a thorough insight.
Q 1. Can tax benefits be claimed if one plans on constructing the house and selling it in a few years?
The tax deductions already claimed will be reversed if the property is sold within 5 years. But, the tax exemptions on interest paid will be unaltered.
Q 2. Who is eligible to claim tax deductions on home loans?
If you are the concerned property owner, you can claim tax benefits. The spouse, if any, can also file for tax deductions if they are a co-borrower on loan. Both parties may lay claim if they are joint borrowers.
Q 3. Can tax benefits be claimed if the property purchased with a home loan is still under construction?
Tax deductions may only be claimed if the construction is completed. After completion, one may claim an average of the interest paid before the year of possession. This may be claimed in five equal installments from the year of completion of construction.
Q 4. Can tax benefits be claimed on two home loans?
Tax benefits may only be availed on one house claimed as self-occupied. You can claim only one house as self-occupied property if multiple properties are owned. The other property will be treated as let-out property and taxed according to the applicable tax slab. The notional rent on the second house will be added to gross income.
Q 5. Can a spouse claim income tax deduction if a house is jointly bought?
Separate deductions in tax returns can be claimed if the spouse is employed themselves with a separate income stream. Up to INR 1.50 lakh from the total income may be claimed by both partners under Section 80C.
If a property is jointly owned, deductions up to INR 2 lakh may be claimed by both owners on account of the interest on borrowed money.
Q 6. Is the Home Loan principal a part of Section 80C?
Yes, the home loan principal is part of Section 80C of the Income Tax Act. This section states that an individual can get tax deductions on the relevant amount paid as repayment of the housing loan’s principal component.
You can claim the tax benefit on the repayment of the principal amount only after the construction of the property is finished. There will be no deduction on repayment of the principal part during the period of construction.
Q 7. Can any other tax deductions be claimed with respect to interest paid on the home other than the interest under Section 24(b)?
Tax deductions regarding the interest on the housing loan may also be claimed under Section 80EE of the Income Tax Act.
Q 8. Can tax benefit be claimed on the principal repaid on a housing loan?
Yes, tax benefits on the principal amount repaid on the home loan may be claimed from total income under Section 80C.
Q 9. What is the maximum amount which can be availed as the deduction of interest paid on a housing loan?
According to Section 24 of the Income Tax Act, a tax deduction of up to INR 2 lakh on the interest payment on the housing loan can be claimed by a person.
Related Articles: Tax Benefit on Personal Loan
Conclusion:
If you plan on getting a loan for a new house, these provisions in the law for a deduction on tax payable concerning the owed interest are sure to help you out.
