Wednesday, 21 March 2018

Home loan tax benefits: How housing loan can help you save big on tax

Owning a house is a dream for most, but it comes at a big financial cost. Buying a home usually requires taking a home loan which generally includes big lumpsum upfront, and monthly EMIs that you pay to your lender for 10, 20 or even 30 years — unless you are one of the few lucky ones who can buy a home completely from your own pocket.
However, availing a home loan also has additional benefits. First, home loans help you improve your credit score through regular and timely payments of the EMIs for a number of years. Second, home loans offer you a number of tax benefits, which can help you reduce your tax outgo. Let’s take a look at tax benefits you can avail if you have taken a home loan or plan to in the near future:
Tax deduction for principal repayment
A home loan borrower’s EMIs has two components – principal repayment, which is the amount you have borrowed from the lender, and interest payment, the amount of interest you need to pay on the home loan. Usually, in the first few years after taking the home loan, the interest component is higher and in the later years, the principal component is higher.
For your principal repayment, you can claim a deduction of up to Rs 1.5 lakh from your total taxable income in a year under Section 80C. Expenses like registration and stamp duty charges are also eligible for tax deduction under Section 80C, but you can avail deductions only when the house has been fully constructed and you have received possession.
Remember, if you sell the property before 5 years of possession, tax benefits availed will become part of your taxable income for the year the property is sold.
Tax deduction on interest repayment
Tax deductions on interest paid on home loan can be claimed from the year the construction of the house is completed. But for this, the loan you have taken has to be for purchase or construction of a new house and also, the construction needs to complete within 5 years of taking the loan. For interest paid on a home loan, you can claim maximum deduction of Rs 2 lakh under Section 24. This deduction, however, can be claimed only for self-occupied property.
For interest paid on loans taken for let-out property, the interest amount is deducted from the rent received from the property. However, there can be instances where there is a loss from the let-out property, i.e. the interest paid on the loan is greater than the rent received. In such cases, the borrower can set off the loss of up to Rs 2 lakh from the income under other heads, such as income from salary, etc. The rest of the loss can be carried forward to future assessment years.
For first time buyers
If you have taken your home loan in the financial year 2016-17, you can claim a further tax deduction of up to Rs 50,000 on your interest repayment under Section 80EE.
However, there are a few conditions that you need to meet to claim this deduction. You need to be a first time home buyer, which means the loan should be for the first property in your name. The value of the house needs to be less than Rs 50 lakh and your loan amount should be less than Rs 35 lakh and it needs to have been sanctioned by a financial institution or a housing finance company. Provided these conditions are met, you can claim this tax deduction till your loan is repaid.
While owning a home is one of the biggest life goals, it also makes most people to adjust their lifestyle due to the high costs involved. So, ensure you make the most of the tax benefits on offer.
Source- Financial Express

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