When you take a loan for buying a home, you not only acquire an asset, but also stand to save on taxes. To make the most of your home loan, be aware of all the tax exemptions and benefits.
What affects your home loan tax break?
Out of all the loans that offer tax benefits, home loans are right on top of the pyramid. The home loan tax exemption you get will depend on the type of home loan you opt for, as well as the loan amount and tenor, and whether you are a first-time homebuyer.
Tax deductions offered under section 24
- Under Section 24 of the Income Tax Act, you can get a deduction on the interest paid for your home loan. However, there are some variations in the deduction that you can avail depending on the occupancy of the property and its completion
- You can claim a tax break if the home loan finances purchase, construction, repair, renewal or reconstruction of a residential property
- If it is a self-occupied property that is completed within 5 years, the deduction limit is Rs.2 lakh. However, if after 5 years the property’s construction is not complete, the deduction limit drops to Rs.30,000
- If the property is not self-occupied, there is no limit on the deduction, before or after the completion of 5 years
- There are no restrictions on selling the property
Tax deductions offered under section 80 C
- Under section 80C of the Income Tax Act, you can get a deduction on the principal amount paid towards your home loan. However, the tax benefit is only applicable after construction is complete
- You can claim tax deduction under section 80C up to Rs.1.5 lakh. Under this section, you only get a tax break if the home loan you have taken is for the purchase or construction of a new property
- To claim a full tax deduction under section 24, the property must be completed within 5 years. There is no such time restriction under section 80C
- If you sell the property within a span of 5 years, the tax deduction will be reversed
- Also, stamp duty charges as well as registration fees are exempt from taxation. This is regardless of whether you opt for a home loan
Tax deductions offered under section 80EE
- Under Section 80EE, first-time homeowners may claim a tax break. You can claim tax-deduction on your interest payments up to Rs.50,000, every financial year, until you have repaid your loan
- This benefit is regardless of whether the property is self-occupied or leased
- Also, you can claim this deduction only if the value of the property is less than Rs.50 lakh and the value of the home loan is less than Rs.35 lakh
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