Monday, January 8, 2018

How Much Income Tax Can You Save, if You Take a Home Loan?

Buying your first residential property with the help of a home loan can get you several tax benefits. These deductions will not only enable you to save big on your income tax outgoes but also allow you to manage your expenses efficiently. If you want to learn how much income tax you can save, if you take a home loan, below is the list of deductions that you can claim:

1.  Deduction on interest: With every home loan comes the liability of paying EMI. However, the interest amount of the loan EMI can be claimed as a deduction, if you are both the owner as well as the co-borrower of a home for which you have taken home loan. You can claim this deduction in the year the construction of your home is completed. Let’s suppose the construction of your home is completed on 30 September 2015. You can claim the deduction for interest for the complete 12 months in the financial year 2015-16. This way you can claim the deduction of Rs. 2 lacs for the new house you stay in. However, if you have put the same house on rent, the interest of entire year can be claimed as a deduction.

2.  Deduction on principal repayment: As the EMI of a loan constitutes both the interest and the principal amount; you will also get benefit for principal repayment. Under section 80C of the income tax act, the part of the EMI which is paid towards the principal can be claimed for deduction. For this, you can calculate the yearly principal amount and claim it for deduction. You can claim Rs. 1.5 lac as a deduction under Section 80C.

3.  Tax deduction on pre-construction interest: You can also claim a deduction for pre-construction interest of your home loan but make sure you make these claims in the beginning of the financial year in which the construction is completed. For this, you must first add the entire pre-construction interest and then claim it in equal payment. Your total deduction on pre-construction interest should reach more than Rs 2 lacs if you reside in the same house and not putting it on rent.

4.  Deduction on registration charges and stamp duty: Under section 80C of the income tax act, you can claim the deduction on stamp duty and registration charges as well. But this deduction is only claimed in the same year these payments were made.

5.  Deduction under section 80EE: You can claim tax deduction under the section 80EE if you are the first-time buyer whose property price is not more than Rs 40 lacs and those who have borrowed the loan of Rs 25 lacs or less. To claim this deduction, another clause is that your home loan should have been approved in between April 1, 2013, to March 31, 2014. Under this section, you can avail a maximum deduction of Rs. 1 lac which can be claimed in any one financial year, i.e. 2013-14 or 2014-15. However, this benefit does not exist for the current financial year 2015-16.

Conclusion: Home loan comes as a boon for those who want to buy their own house and these income tax deductions certainly act as the cherry on the cake. With these deductions, new homeowners can save big but only if these claims are made on time. In addition to this, a little awareness of all types of tax deductions is important to act accordingly. For your further help, many websites provide tax saving calculators with which you can easily find out how much tax can you save if you apply for a home loan. These calculators have a user-friendly interface, thus can be used by anyone with ease.
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