Owning a home is a dream that everyone has. But, you need to make sure that the whole process is well-planned and well-executed, then only you will be able to make the most of it. In fact, calling it a substantial step in Financial Planning won’t be wrong. Even if you are a high net worth individual, it is an arduous task to buy a home from your own savings. Most likely you will find your savings falling short of the property value. This is where home loan comes to the rescue.
However, with the introduction of tax benefits on the interest paid on the housing loan and repayment of the principal amount, opting for a home loan is not only a hassle-free option but a favored option as well. Even if you are a well-to-do individual and possess all the resources to buy it outright, availing a home loan is mathematically a viable option to choose. There are multiple tax benefits associated with the home loan and this is the single most reason why you should avail a home loan. Speaking of tax benefits, let us get to know more about the home loan tax benefits.
Tax Benefits on Principal Re-Paid
As per Section 80C of the Income Tax Act, the maximum deduction made on the repayment of the principal amount of home loan is Rs. 1.5 Lakh. When we talk about deductions under Section 80C it includes – the investments done in the PPF Account, Tax Saving Fixed Deposits, Equity Oriented Mutual Funds, National Savings Certificate subject to a maximum of Rs. 1.5 Lakhs. In addition, there are registration charges and stamp duty that you can claim under this section. However, the claim can only happen in the same year in which you have made the payment.
Nevertheless, there is a condition under which the repayment of the principal amount of the home loan is acknowledged. The deduction will be executed only when the house gets entirely completed and you have the completion certification with you. If there is any under-construction structure, it will not be considered under this section.
You will also have to pay service tax for any under-construction structure as it is priced lower than the complete property. Although, there are no conditions for a completed house, so make sure you have planned accordingly. You have to ensure that there should not be any tax benefit or home loan deduction as per Section 80C if you transfer the property prior to the expiration period of 5 years from the end of Fiscal year in which you get the possession.
Tax Benefits on Interest Paid
As per Section 24 of Income Tax Act, you have the provision of availing the deduction on home loan for the payment of interest tax benefit. As for the self-occupied property, you can avail a deduction with a maximum limit of Rs. 2 Lakhs if the completion is done within 3 years from the end of Fiscal Year, or else it is Rs. 30,000.
Another case is when the house is not self-occupied. In this case, there will be a maximum deduction of Rs. 2,00,000 from Fiscal Year 2017-18 and the pending amount will be carried forward for set-off in the following years.
Make sure you are aware of the fact that the tax deduction of interest on home loan as per Section 24 will be deductible on payable basis i.e. accrual basis.
Deduction on Pre-Construction Interest
You can also have a pre-construction interest claim from the fiscal year pretty much like availing the deduction for the interest rate that can be claimed when the construction is completed at the start of the same year.
The deduction of the claim is permissible in 5 uniform installments starting from the year in which you have purchased the house or the construction is completed.
Section 80EE Income Tax Benefit
If you are a first-time home buyer, Section 80EE offers additional deduction of Rs. 50,000 with reference to the interest on home loan for you as a first-time home owner who owns a house worth Rs. 50 Lakhs or less and has acquired a loan amount of less than or equal to Rs. 35 Lakhs. For this, it is important that the loan is sanctioned between April. 1st, 2016 and March 31st 2017. The deduction will be in addition to Rs. 2 Lakhs permissible as per Section 24B of the Income Tax Act, 1961.