Buying a residential property is one aspiration most Indians share. The government also has launched a number of schemes such as the Pradhan Mantri AwasYojna to encourage Indians to invest in affordable housing ventures and own a home.
Buying a property is a major financial investment and most Indians opt for home loans from reputed banks such as IDFC FIRST Bank. This is a wise move considering that home loans come with a host of tax benefits. Let us take a look at the sections and the extent of benefits you can avail if you opt for a home loan.
Taking a housing loan or a home loan means that your repayment in EMI has two components –
- Interest payment on the loan taken (depending on the home loan interest rates offered to you)
- Amount of the principal repaid
A home loan calculator will help you assess these components before you opt for the loan.
- Deduction for Interest Paid on Home Loan
As per the provisions of Section 24 of the Income Tax Act, a homeowner can claim a deduction of up to INR 2 lakhs on the home loan interest for the financial year if the owner and/or his family reside in the property purchased/constructed with the loan. The only caveat here is that if the loan is taken for the construction of a house, then the construction work must be completed within 5 years from the end of the financial year (March 31) in which the loan has been obtained. Also, the deduction on interest can be claimed after the construction is completed. Deduction under section 24 will be subject to the requirements as stated therein.
- Prior Period Interest Deduction
Prior Period refers to the period between obtaining the loan to the end of the financial year prior to the time the construction was completed. This means that if you get a home loan in FY 2018 and construction is completed in FY 2022, your prior period is FY 2018 – FY 2021. Interest paid by way of EMI’s during this period can be claimed in 5 annual instalments from FY 2022 but the total aggregate limit of deduction still remains INR 2 lakhs.Deduction under section 24 will be subject to the requirements as stated therein.
- Tax Deduction on Principal Repayment
Subject to the provisions and conditions as specified under Section 80C of the Income Tax Act, the principal portion of repayment (through EMI) is also eligible for tax deduction. The total allowable deduction under this section cannot exceed INR 1.5 lakh and the property cannot be sold / transferred within 5 years of possession for this deduction to be applicable.
- Additional Tax Deduction
Home owners opting for an IDFC home loan or a housing loan from any other bank/NBFC can claim additional deduction under Section 80EE. This is only applicable if the property value is up to INR 50 lakhs and the loan is up to INR 35 lakhs. The amount of deduction under this section is a maximum of INR 50000.Also the other conditions as specified in section 80EE should be fulfilled for the purpose of claiming this deduction.
- Stamp Duty, Registration Deduction
When the property purchased through a home loan is registered, the home owner can claim a deduction of up to INR 1.5 lakhs for stamp duty and registration charges under section 80C.
Given the multiple tax benefits you can avail of while opting for a home loan, this may be a great time to invest in your dream home.