Tax Benefits You Can Avail Against Home loans
Published: Feb 23, 2023
For most Indians, purchasing a home is a significant life milestone. In addition to being a source of pride, owning a home is an investment that can grow in value over time. But, purchasing a home is a costly endeavour, and the majority of people need a home loan to fund it.
But now, with the coming of Non-Banking Financial Companies (NBFCs) in India, one can get home loans at affordable interest rates. Moreover, there is a silver lining in the form of tax exemptions and benefits, making home loans less costly. The government provides many tax incentives that can substantially lower your tax obligation. In this blog, learn about some of the tax benefits you can avail yourself of against home loans in India.
Tax Benefits on Interest Paid on a Home Loan
One of the most significant tax benefits you can avail of against home loans in India is on the interest paid on loans. For a self-occupied property, one can deduct up to Rs. 2 lakhs of the interest paid on a housing loan under Section 24 of the Income Tax Act. If the property is let out, there is no upper limit on the amount of interest you can claim as a deduction.
Tax Benefits on Principal Repayment
Section 80C of the Income Tax Act has a provision for a deduction of up to Rs. 1.5 lakh on the principal repayment of a home loan. This deduction can be claimed only if the loan is taken for the purchase or construction of a residential property. However, if you sell the property before five years from the date of possession, the deduction claimed initially will be added back to your taxable income in the year of sale.
Tax advantages on Registration Charges and Stamp Duty
Apart from the tax benefits on interest paid and principal repayment, you can also claim a deduction on registration charges and stamp duty paid at the time of the purchase of the property. Under Section 80C, a person can claim a deduction of up to Rs. 1.5 lakh on these charges. However, this deduction can be claimed only in the year of purchase of the property.
Tax Benefits on Joint Home Loans
If an individual has taken a joint home loan with their spouse or any other family member, they can both claim tax benefits on the home loan interest paid and the principal repayment. The co-borrowers can claim the deductions in the proportion of their share in the loan. This means that both co-borrowers can claim a deduction of up to Rs. 1.5 lakh each under Section 80C, and up to Rs. 2 lakhs each under Section 24.
Tax Benefits on Pre-Construction Interest
If anybody has taken a home loan for the purchase of an under-construction property, they can claim a deduction on the interest paid during the pre-construction period. Under Section 24, they can claim a deduction of up to Rs. 2 lakhs on the amount of interest paid during the pre-construction period, which is the period before the completion of the construction of the property.
The tax exemptions on house loans make it easier for individuals to own their own homes. Moreover, with these tax benefits available against housing loans in India, you can significantly reduce your tax liability. So, if you intend to buy a home, make sure you are aware of the tax benefits available to you, and take full advantage of them.
Non-Banking Financial Companies (NBFCs) have emerged as an important source of credit for individuals looking to purchase a home. The significance of getting a home loan in India from NBFCs is they offer the best loan options that are both flexible and customised to suit the customers’ needs.