Believe it or not, there is an up-side to taking home loans too as they come with multiple tax benefits. The government may be charging tax on most things, but the good thing is that they also offer tax breaks as an incentive to homebuyers. These tax breaks help in reducing outgoing tax, making management of your cash flows that little bit better.
Unknown to many, here are some tax deductions that you can claim back when you take a home loan:
Deductions on the Interest paid
In case you have taken a home loan, then the interest component on the EMI that you pay each month is claimable as a tax deduction; but for a tax deduction to become applicable, you need to be both the owner of the property as well as the borrower of the loan against the property. However, do note that taxes can only be claimed provided you are using the property for personal use and not for passive income like renting.
Whatever interest you pay on your EMIs eventually become deductible from your annual earnings. If your EMI interest component is 1.8 lakhs/annum and your salary is 8 lakhs/year, then your annual taxable income becomes 8,00,000 – 1,80,000 = 6,20,00 lakhs/year. This shows there are benefits to taking home loans too!
Deductions on repayment of the Principle amount
That part of your home loan EMI which makes up the principle amount is also eligible for tax claims under Section 80C of the Income Tax Act. However, only a total sum of 1.5 lakhs is claimable for tax deductions per year.
Deductions on Registration charges and Stamp duty
Aside from tax benefits on interest paid as well as on the principle amount, you can further avail of deductions on stamp duty and registration charges (which come down to a good sum!). The downside is that they can only be claimed in the year they were paid.
Deductions on Pre-construction Interests paid
You can claim pre-construction interests paid also once the construction is completed. This amount should however, not exceed 2 lakhs and is only applicable if the said property is for personal use.
Deductions when in Wife’s name
To encourage financial security for women, additional tax breaks are being offered if a woman is an owner or joint owner of the property. Aside from the initial home loan getting cheaper when taken in a woman’s name, extra benefits up to 1.5 lakhs can be availed every year.