A housing or home loan is an excellent financial instrument that gives you the money you need to purchase or construct your dream home.
You may get several benefits from a home loan, which includes tax benefits, minimal documentation, long loan term, easy eligibility, low interest rate, a convenient application process, and quick loan approval, without moving an inch from your room.
On using a home loan calculator and entering details such as the loan amount, term, and interest rate, gives you a detailed estimate of the EMI and the loan amortization schedule, which can help you to plan the loan amount and term.
While it is true that, presently, home loan interest rates are at their multi-year lows, you can save more if you know about home loan tax benefits.
The Tax Benefits of Home Loan You Should Not Ignore
- Tax Deductions of up to INR 1.5 Lakh
Section 80C of the Income Tax Act enables you to claim tax benefits of up to INR 1,50,000 lakh on your home loan principal repayments. You can get this benefit only if you use the amount for the construction or purchase of a residential property. There are two rules you have to keep in mind to claim home loan tax benefitsunder this section.
Rule 1 – In the case of house construction, it should finish within five years from the date of loan approval.
Rule 2 – If you sell or transfer the property before five years from the date of home loan approval, the tax benefit will be reversed, and you will have to pay tax on the total income in the sale year.
Hence, if you want to save up to INR 1.5 lakh every year, use a home loan calculator and select the right loan amount, you need to save more.
- Tax Deductions of up to INR 2 Lakh
Section 24B of the Income Tax Act enables you to claim tax benefits of up to INR 2 lakh on your home loan interest repayments. There are two types of tax benefits that you can claim under this section.
- During the pre-construction period – You can claim a tax deduction if your house is under construction and you need to pay the home loan EMIs. When you use a home loan calculator, it displays the amortization chart, which contains a detailed representation of the principal and the interest. You can use the interest amount (paid or payable) while calculating the home loan tax benefits. However, you can claim such tax benefits for five years and in five instalments from the date of loan approval.
- During the post-construction period – If you have started living in the property and pay the home loan EMIs, you can claim a tax deduction of up to INR 2 lakh every year from the date of loan approval. If you let out the property, no upper limit for interest deduction would be applicable.
- Tax Deductions of up to INR 50,000
If you do not own a house and live with someone else, Section 80EE of the Income Tax Act encourages you to purchase or construct a house. On buying your first home, you can get home loan tax benefits of up to INR 50,000 on the interest component. Moreover, you can get the deductions over and above the benefits you are getting under Section 80C and 24B.
If the many benefits you get from a home loan doesn’t prompt you to avail a loan, the tax benefits surely will. Ensure that you apply for a no-terms-hidden home loan from a reputed lender like PNB Housing to get the maximum tax benefits.