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Tax Benefit For Home Loan Research Team | Posted On Tuesday, December 11,2018, 11:14 AM

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Tax Benefit For Home Loan



Tax Benefits on Home Loan:

Home loans are lot of money borrowed for a long period of time. There are certain tax exemptions/benefits that can be availed on home loans. These tax benefits reduce the tax burden on the individual availing the loan, which in turn reduces the burdens of home loans.

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Tax Benefit For Home Loan

What are the tax rules on Home Loan Tax Exemption? [Budget 2018-2019]

Individuals who have availed housing loan for self occupied property are entitled to get a deduction up to Rs 2 Lakh a year on interest paid towards the home loan. (House must be retained for own use).

Also, if a property is sold within 3 years of purchase, the profit earned from the transaction will be considered as a short term capital gain and will be taxed as per the slab the individual falls under.

SEE ALSO: Personal Loans For Self Employed With No Proof Of Income

What are the Tax Benefits on Home Loan?

An individual is eligible for tax deduction under three sections of the income tax act on home loans. To avail an income tax benefit for a home loan, the individual must be the owner, co-owner and co-borrower of the home loan:

Principal amount under Section 80 C: A tax benefit can be availed by an individual or Hindu Undivided Family (HUF), on repayment of the principal amount of the home loan up to Rs 1.5 Lakhs a year. Additional tax deductions are as follows:

  • Stamp duty and registration charges are eligible for tax deductions.
  • The home loan should be taken from banks, Central and State government, LIC, NHB, Public Company or a Public Sector Undertaking.
  • Commercial property and home renovations or additions on existing property is not eligible under Section 80C.

Interest payment under Section 24(b): A tax deduction can be availed on the interest on the home loan, if the loan is taken to buy or construct the house up to Rs 2 Lakhs a year:

  • The borrower can claim the above mentioned benefit for repair or reconstruction of an existing property.
  • Processing fees and prepayment charges will also be included in interest payment.
  • Owners of residential and commercial property can also avail this benefit
  • This tax benefit is also applicable for loans taken from friends and family
  • Owners of let-out properties can claim full on interest payment.

Deduction for Joint Home Loan: in case the housing loan is availed by two or more people or in joint name, then each of the borrowers are eligible to claim a tax deduction up to Rs 2 Lakh a year on the interest paid. A tax benefit can also be claimed on the principal paid for an amount up to Rs 1.5 Lakh each. In this case all co-applicants must be the co-owners of the property in order to claim tax benefits on home loan.

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Home Loan Tax Exemptions for first time homebuyers:

A first-time home buyer can avail tax benefits on home loan for both the principal and interest paid. The repayment of the principal amount on the home loan qualifies for an income tax deduction under section 80C of the Income-tax Act, 1961. Apart from principal repayment, the borrower can claim deduction of up to Rs 2 Lakh a year on interest paid on home loans under section 24(b) of the Act.

However, for first-time homebuyers, an additional tax deduction of up to Rs 50,000 a year on interest payments under section 80EE of the Act can be claimed, provided they fulfil certain conditions.

What are the Tax Benefits on a Second Housing Loan?

An individual availing loans for purchasing or building a second house is eligible for tax deductions. However one property will be considered as self-occupied property and the other one will be considered as to-lent/lease property. Any individual is eligible for tax benefits on home loan for a second housing loan as well.

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How to claim Tax Benefits on Home Loans?

Claiming tax benefits on home loan is a simple process. Given below is the process that you can follow to claim tax benefits on home loan:

  • Calculate the amount of tax deduction that can be claimed.
  • You can submit the home loan interest certificate to the HR Department to adjust the tax deductible at source (TDS).
  • Make sure you are either the main borrower or the co-borrower of the home loan to get tax benefits.
  • File ITR for income tax benefit.
  • In case you are a self employed person, submission of documents is not mandatory. But, you must keep the documents handy in case of any IT department queries.

How to calculate Tax Benefit on Home Loan?

An individual can calculate his/her tax benefits on home loan easily by using the home loan calculator online.  Open the IndianMoney home loan calculator and enter the details of your home loan. You enter Loan amount, annual interest and loan period to calculate EMIs. You can see home loan principal and interest break-up and calculate tax benefits.

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