Buying a home is a dream for many people. Every Indian government has shown an inclination towards providing affordable homes to citizens. Many Indians cannot afford to buy their own house and rely on banks to provide loans in making this dream a reality.
Since the majority of the house owners take loans to fulfill their demands, home loans are eligible for income tax deductions.
When you buy a house with a home loan, it comes with various tax benefits. Many schemes like Pradhan Mantri Jan Dhan Yojana are trying to boost the Indian residential sector by striking down the factors affecting the affordability of the house.
Tax benefits of taking a home loan
Provision to Deduct the Interest Paid on Home Loan
A home loan is availed for the purchase/construction of the house. The construction must be completed within a 5-year time frame. If you are paying the EMI for your house loan, it is divided into two parts. The interest payable and principal repayment.
The borrower could claim deductions of Rs. 2 lakhs under section 24 of the Income Tax act. The only condition being the construction of the property getting completed within 5 years. Otherwise, the deduction drops to mere Rs. 30,000.
Under union budget 2019-20, it is proposed to claim the deduction of around Rs 3.5 lakhs for loans up to Rs. 45 lakhs. This will further boost the residential property sector in India. The deduction can be claimed from the year of completion.
Provision to Deduct the Interest Paid on Under-Constructed Property
Let’s say, you bought an under-constructed property and starting paying the EMIs. You may think that your tax exemption begins only after the construction of a property.
But there is a provision in the income tax where you could claim the pre-construction interest, as a deduction in five equal installments from the year the property is acquired or the construction is completed. The maximum eligibility is restricted up to 2 lakhs.
Provision of Tax Benefits on Complete Repayment of the Principal Amount
The principal portion paid through EMIs is eligible for tax deductions. You can claim up to Rs. 1.5 lakhs on the principal amount of your loan. However, the residential property must not be sold within 5 years of possession.
If you do so, the exempted amount is added back as an income to that year and you become eligible for a tax deduction.
Deduction for Stamp Duty and Registration Charges
A deduction for stamp duty and registration charges can also be claimed under section 80 c within the limit of Rs. 1.5 lakhs. However, the tax exemption can only be claimed in the year when the expenses are recorded.
Deduction Under Section 80EE
Additional deduction of Rs. 50,000 is can be claimed if you are a first time home buyer. To claim this deduction, the loan amount should not exceed Rs. 35 lakhs and the value of the property should not exceed Rs. 50 lakhs. The borrower should not own any other house.
Deduction for a Joint Home Loan
If you wish to deduct your tax wisely, you should opt for joint loans. In a joint loan, each borrower could claim their exemption separately up to Rs. 1.5 lakhs each in their individual taxes. To claim this deduction, they should be co-owner of the property bought on loan.
Benefits of Taking a Home Loan
Choosing a home loan can be tricky. You need to first weigh the pros and cons of various offers and choose what’s best for you. With real estate booming in India, various banks and financial institutions provide loans and here are some of the benefits.
Owning an Asset
Property prices in India have seen an appreciation in past years and the trend is likely to continue. Home loans help you secure an appreciating asset making real estate one of the smartest investments. Owning residential property in Pune, Mumbai, Delhi, and similar areas is likely to give you a significant appreciation.
No lock-in of Funds
Buying a residential property is costly in India and not many people have enough capital to invest. Even if you do have the required amount, it is not advisable to do so. Any emergency may pop up and it may hurt if your capital is locked up.
The home loan takes the burden off your shoulders and gives you an opportunity to invest your money in other activities.
Improves Your Credit Score
Paying your EMIs regularly helps you maintain a good credit score and increase your creditworthiness. If you have a good credit score on your home loans, you become eligible to finance other purchases like a car, education, etc.
Low Rate of Interest
The rate of interest on home loans is lower compared to other types of loans. It is easier to get a home loan in India since it is secured with an asset. Taking a home loan is the best way to fund a long-term asset.
Conclusion
Buying a home is an important step in many people’s life. But it is a costly investment, and investing all your capital in one asset is not such a good idea. So a home loan is the best way you can buy a residential property.
Since the government is pushing affordable residential houses, the income tax act offers various provisions for you to save your money.
Author Bio:
Hi, I am Ritika, Currently working as a Senior Designer at Goel Ganga Developments, Pune. Two previous generations of my family have been in the real estate sector and hence I am fascinated by the world of real estate. The true proof of a country being developed is highlighted in its real estate infrastructure and I am passionate about this sector. I write extensively about various topics related to Real estate. Writing helps me solidify my knowledge and gain a new perspective.
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