Is Taking Home Loan A Smart Decision For Saving Taxes?

Given the high-Quality prices in the country, it is almost difficult to buy a house without availing home loan. Home Loan Tax Benefit – A housing loan usually comprises of 70-80% of the Property’s cost. So, it is probably the largest amount a person would avail in the form of a loan. Now the question that comes into the picture is “Is taking a housing Loan a smart decision for saving taxes?”

Will you reject a home loan, if the EMIs that you pay in the form Principal amount and interest both fit for tax deduction under Income Tax Act, 1961? Let’s take a closer look at your home loan tax benefits.

Home Loan TAX BENEFIT ON REPAYMENT OF PRINCIPAL AMOUNT

 Individuals and HUFs are eligible to avail home loan tax benefit for buying or construction of Home under Section 80C of Income Tax Act, 1961. Deduction of Repayment of the principal amount from the taxable income can be claimed up to the maximum of Rs. 1.5 lakhs (Rs. 1 lakhs up to A.Y. 2014-15). This tax deduction also includes amount invested in PPF Account, Tax Saving Fixed Deposits, National Saving Certificate, etc.

Points to be taken care of:

When a loan needed for Purchase of Property– No home loan tax benefit will be allowed if the house property is moved before the expiry of 5 years from the end of financial year of possession of the property. In such cases, the amount claimed as a deduction will be reversed and become taxable.

When a loan is needed for Construction of property: Home Loan Tax benefit is allowed only when the construction is complete, and completion certificate is given. No deduction is allowed for the repayment of the principal amount for those years during which the property was under construction.

Home Loan TAX BENEFITS ON PAYMENT OF INTEREST

Home Loan Tax benefit on payment of Interest on a home loan is allowed as a deduction under Section 24 of the Income Tax Act, 1961.

In case the property is self-occupied– Tax deduction is subject to maximum limit of Rs. 2 Lakhs (Increased from 1.5 to 2 lakh in Budget 2014)

In case the property is not self-occupied– Tax deduction of whole interest amount can be availed.

Points to be taken care of:

If the property is not self-occupied by the owner because of his employment, business or profession being carried out at any other place, then the amount of tax deduction shall be Rs. 2 lakhs only.

The tax deduction can be claimed to start the year in which construction of the house is completed. However, pre-construction interest can also be claimed in 5 equal installments starting the year in which construction is completed.

Home Loan TAX BENEFIT OF STAMP DUTY AND REGISTRATION CHARGES

The amount paid as Stamp Duty & Registration Fee is also allowed as a tax deduction even if no home loan has been accepted.

NEW Home Loan TAX BENEFIT UNDER SECTION 80EE

This is an additional Home loan tax benefit of Rs. 50,000 for interest on home loan available to the first time buyers (only individuals). To avail this benefit, Value of the house should not be more than 50 lakh, the loan should not be more than 35 lakh, the loan should approve between 01.04.2016 to 31.03.2017.

Now we hope. You make a Smart Choice!