When you are looking to buy a home, getting a home loan is one of the most significant investments that you can make. The cost of buying a house is often high, and a home loan can help you purchase the house of your dreams with ease. However, apart from just buying your dream house, there are several other benefits that a home loan can provide to you, especially regarding tax benefits.
The Indian government offers several tax benefits to individuals who have availed of a home loan. Home loan tax benefits can be a significant source of savings for you and can help you reduce your tax liability. In this article, we will discuss some of the home loan tax benefits and how you can use them to save money.
In India, there are two types of home loan tax benefits – deduction on interest paid on the home loan and deduction on the principal amount repaid. Let’s discuss each of these tax benefits in detail.
Deduction on Interest Paid
The interest paid on the home loan is eligible for a tax deduction under Section 24(b) of the Income Tax Act, 1961. According to the section, taxpayers can claim a deduction of up to Rs. 2 lakhs on the interest paid on a home loan. This deduction can be claimed on loans taken for both a self-occupied property as well as a rented property.
For instance, if you buy a house and take a home loan of Rs. 60 lakhs for a period of 20 years, and the interest payable is 8% per annum, then the total interest payable over the loan’s tenure would be around Rs. 52 lakhs. In this case, you can claim a deduction of Rs. 2 lakhs on the interest paid.
Deduction on Principal Amount Repaid
Apart from deduction on interest paid, taxpayers can also claim a tax deduction on the principal amount repaid on the home loan under Section 80C of the Income Tax Act. This deduction has a maximum limit of Rs. 1.5 lakhs per annum. This amount includes other investment avenues such as Public Provident Fund (PPF), Employee Provident Fund (EPF), National Savings Certificate (NSC), Life Insurance premiums, Equity Linked Savings Scheme (ELSS), and so on.
For example, if you have taken a home loan of Rs. 60 lakhs for a period of 20 years, and the monthly instalment towards software is Rs. 50,000, then over the course of a year, the principal amount repaid would be around Rs. 4.5 lakhs. In this case, you can claim a tax deduction of Rs. 1.5 lakhs as per Section 80C.
Combined Deductions:
It is important to note that there is no cap or limit on the total tax benefit that can be claimed under both the above deductions. Hence, taxpayers can enjoy benefits on both the interest paid and the principal amount repaid.
Additionally, if either spouse has a home finance, both can claim deductions on the same property without any limit, provided they are co-owners of the property and have contributed towards the home loan’s repayment.
Moreover, tax experts advise that the home loan tax benefits can increase the savings one can make by a considerable margin. However, to calculate such savings, one must utilise an income tax calculator and enter the total interest payable, the principal repaid, and other investments made in the same financial year to know their total taxable income and returns.
Conclusion:
In conclusion, home loan tax benefits can help you save a significant amount of money, especially in the long term. By availing such benefits, individuals can reduce their tax liability by a considerable margin. Moreover, with the advancement of technology, an online income tax calculator provides an easy way to calculate the savings one can make. Hence, if you are planning to take a home loan, remember to claim the tax benefits that you are eligible for and maximise your savings.
