As per the Income Tax Act of 1961, you can get annual home loan tax benefit via both the interest and principal components of the loan. The main tax reliefs are listed under Section 80C and Section 24B. Section 80C allows for a deduction of Rs.1.5 lakh towards principal repayment and Section 24B allows for a deduction of Rs.2 lakh on the basis of interest repayment.
You can use a home loan tax benefit calculator to know your tax savings and net liability keeping in mind your gross annual income, home loan payments and total deductions that you can claim. Additionally, Section 80EE specifies a deduction of up to Rs.50,000, and the Union Budget 2019 makes it possible for you to claim an additional deduction of up to Rs.1.5 lakh on interest payments as long as you meet certain conditions.
What are the terms and conditions of claiming a tax deduction under Section 80C?
Section 80C of the IT Act makes provisions for yearly deductions of up to Rs.1.5 lakh towards principal repayment for both self-occupied and let-out properties. In order to claim this tax benefit, you should refrain from selling your property within the first 5 years of possession. If sold, your claims will be reversed in the year in which you sell the property. Also note that the deduction does not apply to under-construction properties, and you can claim tax benefits only after construction is completed.
Certain investments also allow you to claim a deduction under Section 80C. However, the total limit of all deductions is capped at Rs.1.5 lakh per financial year. The tax relief obtained via this section reduces your net taxable income. Assuming that your gross annual income is Rs.5 lakh and you get full home loan tax benefits of Rs.1.5 lakh, your taxable income becomes Rs.3.5 lakh.
What are the terms and conditions of claiming a tax deduction under Section 24B?
You can get a deduction of up to Rs.2 lakh owing to home loan interest payment under Section 24B of the IT Act. However, this limit is for a self-occupied property, and there is no cap on the amount you can claim in case of a let-out property.
While you can claim home loan tax benefits under Section 24B when you purchase or construct a house, you get the full Rs.2 lakh deduction only if the acquisition or construction for a self-occupied property is completed within 5 years starting from the end of the financial year in which you took the home loan. The threshold drops to Rs.30,000 in case the 5-year period is exceeded. On the other hand, in the event that you have let out the property, you can claim the entire amount even if construction hasn’t been completed.
When financing an under-construction property, remember that your tax deductions are limited to Section 24B only. Interest that you pay before completion is aggregated and allowed as a deduction in 5 equal instalments over a period of 5 successive financial years. This begins from the year in which you take possession of the house or the year of completion.
In addition, this year’s Union Budget also specifies an additional deduction of Rs.1.5 lakh for interest repayment on home loans sanctioned in the present financial year, and for those loans sanctioned up to 31 March 2020. You can make use of this if you purchase affordable houses costing up to Rs.45 lakh in tier-II and tier-III cities, as well as metro peripheries.
Can you get a tax deduction under Section 80EE?
Section 80EE provides an additional deduction of up to Rs.50,000 for first-time homebuyers who are servicing a home loan that was sanctioned between 1 April 2016 and 31 March 2017. To be eligible, your principal should not exceed Rs.35 lakh and the property’s value should be less than or equal to Rs.50 lakh.
What are the tax benefits that senior citizens can make use of?
Senior citizens enjoy enhanced home loan tax benefits under both Sections 80C and 24B of the IT Act. In case of self-occupied properties, senior citizens get a deduction of up to Rs.2 lakh under Section 80C and up to Rs.3 lakh under Section 24B.
Are extra tax benefits available to those who take a joint home loan?
Taking a joint loan is an excellent way to save tax on a home loan. This is because each co-applicant can claim tax benefits in full under Section 80C and Section 24B. To be able to make use of this facility, note that the loan’s co-applicants must also be co-owners of the property in question.
What does a home loan tax benefit calculator do?
As the name suggests, a home loan tax benefit calculator helps you arrive at your tax savings for the financial year. The income tax saving calculator computes these tax benefits by taking into account your profile type, gross annual income for the financial year, home loan payments and the deductions you can claim under Section 80C and 24B. Here, home loan payments comprise the principal and interest paid for the year. These, in turn, are determined by your loan amount, tenor and home loan interest rate.
How to calculate home loan tax benefit?
To know your benefits via a home loan tax saving calculator, simply follow these 3 steps.
First, choose the applicable customer type: ‘Regular’ or ‘Senior citizen’
Then enter your gross annual income and the principal and interest paid on the home loan for the year in the respective fields
Lastly, click on ‘Calculate’
The calculator will do the math and tell you your income tax liability before the loan and after the deductions that a home loan offers you and display your tax savings as well!