Purchasing your first home loan does have its fair share of advantages, I’m talking about all the tax benefits, most of which you’re unaware of! These deductions are a blessing as they reduce your tax outgo and also help in managing your cash flow better. Computing the tax benefits of a home loan on a benefit calculator assists in determining which tax deductions are available to you as a home loan borrower.
Following are 3 sections under which you can claim tax benefits on home loans:
Deduction on interest under Section 24 of the Income Tax Act
Tax benefits on home loan for payment of interest is permitted as a deduction under Section 24 of the Income Tax Act.
If you are shelling out a fixed amount at a specified date of each calendar month to the lender for a home loan taken to buy a house, also known as EMIs, then the interest component in this EMI can be claimed as deduction. This deduction can be demanded for in the beginning of the year in which the erection of the house is completed. On the other hand, if you stay in a rented apartment then the entire interest for the year can be claimed as deduction. Moreover, it’s essential to note that even if you have missed paying off a few EMIs during the financial year, you are still eligible to claim deduction on the interest part of the EMI for the complete year.
Deduction on principal repayment under Section 80C of the Income Tax Act
Another important tax benefit, this is catered towards the principal amount of the home loan. A part of your EMI which is paid towards the principal is eligible to be claimed under Section 80C of the Income Tax Act. A maximum amount of Rs. 1.5 lakh can be claimed as deduction under Section 80C. Under the EMI plan, prepayment charges, service fee and the processing fee for the sanctioned loan are eligible for deductions under Section 24 of the Income Tax Act. Important note to keep in mind is that there will be no tax benefit before you get the possession of the house and the loan can only be taken for the construction or purchase of a new house, not for repairs of an old house.
Deduction for first-time buyers under Section 80EE of the Income Tax Act
This section of the IT Act provides for an additional deduction of Rs. 50,000 on interest of home loans. This incentive will be over and above the tax deduction of Rs. 1.5 lakh under Section 80C and Rs. 2 lakh under Section 24. This tax deduction can only be claimed by providing the statement from the lender, which shows the amount payable and the amount paid towards principal and interest. Whatever the balance income is after the deduction will be taxed as per the income tax slab rates.
Now that you’ve extensive knowledge about the numerous tax benefits available to you, here comes the hard part! How to know which of these tax deductions are applicable to you? The solution – use a tax benefit calculator, this will assist you in determining the tax saving benefits you are eligible for. An efficient tax saving calculator will be instrumental in helping you analyze the numerous benefits that you can avail when purchasing a home.
Once you’ve understood the above mentioned pointers, all you have to do next is to remember to claim them when you file your tax returns!