How Can You Save Tax on Home Loans?

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The government of India offers several tax benefits on loans to encourage people to invest in real estate properties. The benefits offered are under the provisions of the Indian Income Tax Act, 1961. You can take advantage of these deductions and save a significant amount on your tax outgo if you apply for a home loan. You can take advantage of the following tax deductions under different sections of the IT Act.

Tax deduction under Section 80C

Under Section 80C of the IT Act, 1961, you can claim for a tax deduction up to a maximum limit of Rs. 1.5 lakhs for the repayment of the principal amount of the home loan. But to avail the deduction, you must get the home loan either to buy a new residential property or to construct a home on the land that you own. In order to get tax benefit for home loans for construction, the construction of the home should be completed within five years of taking the loan.

Apart from availing tax benefit on the repayment of the principal amount, under Section 80C, you can also get tax benefit on the stamp duty, registration fees, and other charges that are directly related to the transfer of a property to your name. But note, to avail this tax benefit, you must file for a claim in the same year in which the expenses were incurred.

Tax deduction under Section24(b)

As per the Section 24(b) of the Indian Income Tax Act, you can get tax benefit up to a maximum limit of Rs. 2 lakhs every year for repaying the interest on home loan. You can take advantage of the deduction only if you have availed the loan after April 1st, 1999 either for purchasing a new home or construction of a home.

If you have purchased a property and let it out on rent, there is no limit on the home loan tax deduction. If you have availed a home loan for buying an under-construction property, you must know that the interest you repay before the completion of the project is not eligible for a tax deduction. You can claim deduction only from the year in which the construction is completed.

Tax benefits under Section 80EEA

If you have purchased a property and let it out on rent, there is no limit on the home loan tax deduction. If you have availed a home loan for buying an under-construction property, you must know that the interest you repay before the completion of the project is not eligible for a tax deduction. You can claim deduction only from the year in which the construction is completed.

The first-time homebuyers who availed loan after April 1, 2019, are eligible to claim the tax benefit under this section. Another vita criterion you must fulfil to avail the tax benefit under this section is that the value of the property you wish to buy must not be more than Rs. 45 lakhs.

Maximizing the tax benefit on home loan

The best way to maximize your tax deduction is to apply for a joint home loan. You can apply for a joint loan with any of your earning family member including spouse, sibling or parents. Applying for a joint loan allows both the applicants to individually leverage the tax benefit under Sections 80C, 24(b) and 80EEA. It also allows them to increase their home loan eligibility and avail a higher loan amount.

Steps to Claim Home Loan Tax Benefits

  • First and foremost, calculate the amount you can claim as tax deduction under different sections of the IT Act.
  • Provide the home loan interest certificate to your employer and the loan EMI statement along with Form 12BB when they ask you to submit the income tax proofs
  • You can claim the tax benefit at the time of filing your income tax returns if you fail to provide the certificate to your employer.
  • If you are a self-employed professional, you need not submit any documents. But you must keep the relevant proofs of the deduction for future use.

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