Purchasing a home is an important milestone in everyone’s life, and homeownership comes with numerous benefits, including the opportunity to take advantage of home loan tax benefits. These tax benefits can help homeowners reduce the amount of tax they owe and put those savings towards their home finance, or other financial goals like savings, investments, or debt reduction.
The Income Tax Act, 1961, allows for deductions and exemptions on home loans under Sections 24, 80C, and 80EEA. Homeowners who claim these deductions can reduce their taxable income significantly. It is, therefore, essential for every homeowner to understand these tax-saving provisions to harness their financial benefits and maximize their savings.
Advantage of Home Loan Tax Benefits
One of the most significant advantages of owning a home is the housing loan tax benefit. The Indian government recognizes the importance of homeownership and incentivizes it by offering homeowners tax deductions on both the interest paid and the principal repaid on their home loans.
Under Section 24, homeowners can claim a deduction of up to Rs.2 lakhs per annum on the interest paid on their home loan if the property is self-occupied. If the property is not self-occupied, i.e., the homeowner has let it out, there is no limit on the interest deduction. The deduction can be claimed if the homeowner has taken the loan to purchase, construct, or repair the property.
Under Section 80C, homeowners can also claim a deduction of up to Rs.1.5 lakhs per annum on the principal repaid on their home loan. However, this deduction is subject to the condition that the loan has been taken on or after April 1, 2013, and the cost of the property does not exceed Rs.45 lakhs. This section applies only to first-time homebuyers.
Lastly, under Section 80EEA, homeowners can claim an additional deduction of up to Rs.1.5 lakhs per annum on the interest paid on their home loan if the property’s cost does not exceed Rs.45 lakhs, and the loan has been sanctioned between April 1, 2019, and March 31, 2021. This deduction is in addition to the Rs.2 lakhs deduction allowed under Section 24.
It’s important to note that to claim these deductions, homeowners must meet certain conditions. For example, the property must be completed within five years from the end of the financial year in which the loan was taken. Additionally, the homeowner must provide proof of payment towards the loan’s principal and interest during the year to claim the deductions.
How Income Tax Calculator can be Used for Home Buyers
To calculate the income tax benefits of a home loan, homeowners can use an income tax calculator, which is readily available online. These calculators consider the homeowner’s income, the loan amount, the interest rate, and the loan’s tenure to determine the amount of tax savings the homeowner can expect.
Harnessing home loan tax benefits can potentially help homeowners save thousands of rupees in taxes each year. For example, consider a homeowner who has taken a home loan for Rs. 50 lakhs at an interest rate of 9% for 20 years. The homeowner could potentially save up to Rs. 75,000 in tax under Section 24, Rs. 45,000 under Section 80C, and Rs. 75,000 under Section 80EEA, resulting in a total tax savings of Rs. 1.95 lakhs per year.
In conclusion, if you’re a homeowner, it’s important to understand the tax-saving provisions related to home loans. By harnessing these tax benefits, homeowners can reduce their taxable income, potentially save thousands of rupees in taxes each year, and put those savings towards their home finance, or other financial goals. Using an income tax calculator to determine the tax savings can be a helpful tool in making informed decisions about home loans and reducing your tax liability.