How to Use Home Loans Effectively For Tax Benefits


For many of us, buying a home is like a dream come true. Our government has always encouraged its people to invest in purchasing a home and this is the reason why, under section 80C, home loans are eligible for home loan tax deductions. One of the primary reasons why buying a home comes with a number of tax benefits is that it greatly reduces your tax outgoings.


In this article, we will learn about the different kinds of home loan tax benefits that are available for home buyers.


  1.  Deduction for Interest Paid on Housing Loan

Home loans are availed for the construction or purchase of a house. This must be completed within five years from the end of the financial year in which the loan was taken in order to avail tax benefits.


There are two components with regards to home loans –principal repayment and interest payment. The interest portion can be claimed as a deduction up to a maximum of Rs 2 lakhs under section 24.


  1. Deduction in Respect of Interest Paid Towards Home Loan during Pre-construction Period

 If you’ve bought a property that’s still under construction, you can avail tax benefits in this case too. This is called pre-construction interest and it is a deduction of five equal instalments that start from the year in which you acquire the property or when the construction is completed.


  1. Deduction on Principal Repayment

 Under section 80C of the Income Tax Act, the principal part of EMI paid for the year is allowed as a deduction. You can claim a maximum amount of up to Rs 1.5 lakhs. So, if your principal payment for a financial year is Rs 1 lakh, then you have to invest another Rs 50,000 in a tax saving element in order for you to exhaust the 80C limit.  Other expenses and investments also qualify for this section limit.

However, to avail this deduction, the house should not be sold within five years of ownership. Or else, the deduction that you’ve claimed will be added back into your income in the year of sale.


  1. Deduction for Stamp Duty and Registration Charges

 You can claim a deduction for registration charges and stamp duty under section 80C, if it’s within the limit of Rs 1.5 lakhs. However, this claim can only be made in the year in which the expenses were incurred.


  1. Deduction for First Time Home Buyers

 For first time home buyers there is an additional deduction that is allowed under section 80EE for a maximum of up to Rs 50,000. In order to avail this type of deduction, your loan amount should be Rs 35 lakhs or less and the value of property should not exceed Rs 50 lakhs.

Hence, loans taken to purchase your house comes with a lot of advantages and benefits. It’s a great way to invest and also enjoy the home loan tax benefit that comes with buying your own little space in this big world.









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