When it comes to property purchase, availing of a housing loan is often the first step for most homebuyers. A home loan not only helps you realise your aspirations, but it also offers multiple tax benefits. Understanding and making the most of these benefits can help you maximise your savings.
Understanding Home Loan Tax Benefits
When you avail of a home loan, you repay it in monthly instalments, called EMIs. Each EMI consists of two components: the principal repayment and the interest payment. Both of these offer substantial tax deductions under the Income Tax Act, 1961. Let us understand these deductions in detail.
Deduction on Home Loan Interest under Section 24(b)
Under Section 24(b), you can claim deductions of up to Rs. 2 Lakh annually on the interest component of your home loan repayment. It is important to note that the property must be self-occupied, and the construction or purchase should ideally be completed within five years.
Deduction on Principal Repayment under Section 80C
Another tax-saving advantage is under Section 80C, where repayments towards the principal amount of your home loan qualify for tax deductions up to Rs. 1.5 Lakh per financial year. This deduction is part of the broader 80C deductions, which include contributions to provident funds, insurance premiums, and other specified investments.
Additionally, stamp duty and registration charges you incur while purchasing your property are eligible for deductions under this section. Remember, these charges must be claimed within the year they are paid.
Additional Benefits for First-Time Homebuyers: Section 80EE and 80EEA
The Income Tax Act, 1961 extends special benefits to first-time homebuyers through Sections 80EE and 80EEA. These are designed to promote affordable housing:
Section 80EE
First-time homebuyers who took a housing loan between 1 April 2016 and 31 March 2017 can claim an extra deduction of up to Rs. 50,000 annually on the interest payment, over and above the standard Rs. 2 Lakh under Section 24(b). To qualify, the loan amount should be up to Rs. 35 Lakh, and the property value should not exceed Rs. 50 Lakh.
Section 80EEA
Section 80EEA offers higher deductions for affordable housing. If your home loan was sanctioned between 1 April 2019 and 31 March 2022, you could claim an additional deduction of Rs. 1.5 Lakh on the interest component. To qualify, the property’s stamp value should not exceed Rs. 45 Lakh, and you must be a first-time property buyer.
It is important to note that Sections 80EE and 80EEA deductions cannot be claimed simultaneously.
Navigating the Home Loan Procedure Efficiently
It is equally important to familiarise yourself with the home loan procedure to streamline your loan approval:
● Verify your eligibility based on income, age, credit history, and employment status.
● Keep essential documents handy, such as identity proof, income details, property papers, and bank statements. Accurate paperwork significantly speeds up your home loan approval process.
● Compare the available options for the most suitable home loan interest rate and repayment terms.
● Submit your application online or through the lender’s nearest branch. The lender will then perform verification and approve your loan post successful documentation checks.
Making the Most of Your Home Loan
Taking advantage of the home loan tax benefit can substantially ease your finances. While homeownership is fulfilling, ensuring you manage the financial aspects prudently can make the journey more rewarding.
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