When it is salary that gets credited to you every month, the best way to buy a house is through paying reasonable EMIs. So, while we talk about home loans, what do you know about them? You know that they offer financial aid when you want money to buy a new house, land, and more. Are there other things you might have to know about home loans? Certainly is. It’s the taxes. What are the tax implications of home loans, and most importantly, what are the tax benefits of home loans? Let’s find out in this article.
What is a Home Loan?
A home loan, also known as a mortgage, is a type of loan specifically designed to help individuals or families purchase or construct a home. It enables people to borrow money from a lender, usually a bank or even a lender, to finance the purchase of a home or any other form of residential property.
What are the Tax Benefits of a Home Loan?
Real estate prices have already skyrocketed, and if there is a way you can reduce your expenses, taxes are one pathway.
Sections for Rebate on Home Loans
Section 24b – You can reduce up to Rs. 2 lakhs through this section. This applies to self-occupied property. There is no upper limit for rent or deemed to be rent properties.
Section 80 EEA – You can reduce up to Rs. 1.5 lakhs. There is an additional deduction for first-time home buyers who meet certain criteria.
Section 80C – You can reduce up to Rs. 1.5 lakhs. This is applicable only for principal repayment.
Let’s understand the three sections even more in-depth. Before that, Try the housing loan EMI calculator to better plan your finances and make informed decisions about using rebates.
- Section 24B
Section 24(b) provides an income tax credit on house loans, but only for the interest portion of the loan. It also applies if you took out a loan for house building or renovations. The deduction is relevant to the prepayment and processing fees you pay to your lender.
You can claim the whole interest payment deduction if you rented out the bought home. However, if you have inhabited the property, the deduction maximum is Rs. 2 lakhs every fiscal year.
- Section 80 EEA
This tax break on house loans is exclusively available to first-time homeowners. If you are purchasing a property for the first time, you can claim extra deductions of up to Rs. 50,000 under section 80EE if you meet certain requirements.
To be eligible for this benefit, the house loan amount must be no more than Rs. 35 lakhs, and the property cost cannot exceed Rs. 50 lakh.
- Section 80C
Section 80C of the IT Act allows you to claim tax deductions on the principal amount you return to your lender. This discount also applies to your house’s registration and stamp duty expenses.
The highest home loan tax exemption under Section 80C is Rs. 1.5 lakhs per fiscal year. Other permissible investment choices under section 80C include ELSS funds, PPF, and tax-saving FDs. Even if you have invested in such securities, the deduction limit remains at Rs. 1.5 lakhs.
These sections were applicable if you were getting a home by yourself. What happens if you choose to get it as a joint home loan?
Tax Deductions on Joint Home Loans
The sections for joint home loan deductions are:
Section 80EE – You can reduce up to Rs. 50,000. This is applied for loan amounts that range upto Rs. 35 lakhs and a property value of up to Rs. 50 lakhs.
Section 80C – You can reduce up to Rs. 1.5 lakhs on stamp duty. This needs to be claimed in the same financial year as it was spent.
Are There Any Other Tax Benefits on Home Loans?
If you take out another home loan to buy a second home, the tax savings only apply to the interest payments. You can claim the whole interest amount. Before you apply for a house loan, you should get expert advice and make an educated choice.
Important Aspects You Need to Consider Before Taking a Home Loan
Though there are ways you can reduce costs, there are a few attributes you need to consider before moving forward with your home loan, and they are:
- Affordability – Decide how much you can possibly afford in order to borrow according to your income, expenses, and other financial needs. Also consider not only the monthly mortgage payments but also additional expenses, such as loan taxes, insurance, and utilities.
- Credit Score – Your CIBIL report has a crucial role in the home loan approval procedure and the interest rate that you would receive. Check your credit report and score beforehand and take bigger steps to improve it if necessary, such as paying off debts and resolving any mistakes on your credit report.
- Down Payment – Save up for a down payment, which is typically a certain percentage of the home’s purchase price. A larger percentage of down payment can lower your loan amount, reduce your monthly payments, and potentially qualify you for better interest rates.
- Interest Rates – Compare the different interest rates that are offered by different lenders to find the most competitive rate. Consider whether you prefer a fixed-rate loan, which offers stability and predictability, or an adjustable-rate loan, which may have lower initial rates but can fluctuate over time.
- Future Plans – Think about your long-term plans and how they could impact your chance to repay the loan. Assess factors such as job stability, career advancement opportunities, family changes, and potential relocation to ensure you’re making a sound investment decision.
Conclusion
Now that you are well aware of the tax deductions make sure you utilize them when taking out your home loan. There are a few things that you could possibly overlook while taking out a home loan, and tax deductions and reduced expenses are not some of them. We hope you found what you were looking for in this post.
