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Understand How Your Home Loan Can Offer You Tax Benefits

India’s real estate industry, considered as one of the largest developing sectors of the economy, is developing at an astonishing rate. It has increased at a CAGR of 19.5% between FY 2017-2018, and experts predict that it will contribute to almost 13% of the nation’s GDP by 2025.

The emergence of nuclear families, increase of average household income, and rapid urbanization is the primary contributor to such growth. Experts also consider the availability of housing credit for such progression.

Affordable interest rates, customizable tenor, and extensive home loan tax benefits make these advances an ideal option for prospective homeowners, ensuring minimum financial strain while repaying the outstanding debt.

The Government of India provides several exemptions on home loans under the Income Tax Act of 1961. Beneficiaries can avail such benefits on both the principal and interest component of the credit, ensuring substantial savings while repaying the loan.

Every prospective applicant must be well aware of the various tax exemptions of these credits; the following is a brief rundown of the same.

Home Loan Tax Exemptions

Home loan tax benefits can be classified depending on the source of exemption, as well as particular scenarios where these exemptions will be relevant. Let’s take a look at the conditions.

  • Exemption on principal amount – 

Section 80C allows a maximum tax exemption of up to Rs.1.5 lakh from the principal repayment portion of the loan’s EMI. This exemption can be availed every financial year during the loan repayment, and one can apply after their property’s construction is complete. However, it will not be applicable if the property is sold within five years of receiving possession.

  • Exemption on stamp duty and registration charge – 

Section 80C also allows tax exemption against payment of registration fees and stamp duty. However, the maximum amount you can claim for tax exemptions is Rs.1.5 lakh in total. You can only avail of this home loan tax benefit during the first year of repayment.

This is a tax benefit every new and existing customer should know as it can also be availed if the property is acquired without any financial assistance from a home loan. 

  • Exemption on payable interest – 

Section 24(b) allows for tax exemption on the payable interest up to a maximum of Rs.2 lakh. This clause is applicable for self-occupied houses only, which is completed within five years from the beginning of construction. It is one of the many tax-saving features and advantages of a home loan.

In case the house construction is not completed within five years, the exemption limit is reduced to Rs.30,000 per year. However, if the property is rented-out, borrowers can claim tax exemption on the total payable interest, without any restrictions on time taken for the construction of that property.

  • Exemption for a joint home loan – 

Borrowers planning to avail of a home loan with their spouse or another family member can benefit significantly, as the Income Tax Act offers several tax benefits on a joint home loan. They can make each avail tax exemption of up to Rs.2 lakh on the interest amount and up to Rs.1.5 lakh from the principal amount of credit. These benefits are available only if both the applicants are co-owners of the property. Borrowers can use an online home loan tax benefit calculator to determine the exempted sum.

  • Exemption for beneficiaries of HRA – 

If a borrower avails a home loan while living in a rented property, he or she can enjoy all home loan tax benefits along with other advantages applicable to their House Rent Allowance.

These will be calculated based on –

  • Sum received as HRA from the employer.
  • Total rent, along with 10% of the borrower’s salary.

The clauses mentioned above are some of the tax exemptions that a home loan borrower can avail.

These are some of the essential guidelines that every borrower should remember while applying for credit. It can help them save a substantial sum during the repayment tenor while ensuring timely and hassle-free debt pay-off.

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