The Income Tax Act, 1961 makes provisions for certain exemptions and deductions when you avail of a housing loan by increasing your loan’s value for money. In fact, many people often choose to invest in a property for the second time because of the tax benefits it carries, making it an attractive tax-saving option.
In this article, we will highlight the income tax benefits borrowers can make use of after they’ve availed of a housing loan from leading lenders. There are several types of benefits and exemptions one can be eligible for, which is why it’s necessary to know the details. You must not miss out on what you can get. Read on to learn more.
How to Get Income Tax Benefits on Home Loans
The Income Tax Act 1961 allows several types of exemptions and benefits to incentivise borrowing of housing loans and to encourage investments in real estate. Here are some of the benefits you stand to get when you avail of a home loan from an established lender in the Indian market.
1. Tax Benefits for Self-Occupied Properties
This is one of the most sought-after tax benefits that most borrowers make use of. As per Section 24 of the Income Tax Act, the interest accrued on your home loan of up to Rs 200,000 can be counted as deductible on properties that are self-occupied. However, this benefit will be extended only if the property’s construction can be completed within five years.
2. Tax Benefits for Under-Construction Properties
For those properties that are still under construction and on which pre-EMIs are paid, no deductions can be made until the construction is completed. However, once it is completed, you can claim the entire portion of the interest paid during the time of construction in five equal instalments spread over five years.
3. Tax Benefits for Let-Out Properties
There is no ceiling on deduction for let-out properties i.e. properties which have been rented out. You can now claim your entire home loan interest as deduction.
4. Tax Benefit on Principal Amount
The Section 80C of the Income Tax Act allows a deduction on specified investments and insurance payments, and your home loan payment can also qualify under this. Borrowers can claim up to Rs 150,000 of the principal amount that they’ve repaid as deduction. This is applicable on both self-occupied properties as well as let-out properties. Additionally, overhead charges such as stamp duty, registration, and other statutory charges, can also be claimed under this Act.
It is important to note that if such deductions are being claimed against a property, the home loan should be for the purchase or construction of that property alone, and the property cannot be sold in the next five years. If you plan on selling the property, the deduction will be reversed and will be added to your income.
5. HRA Benefits
If you have an ongoing home loan and you reside in a place where you don’t have your own house, you may be allowed to claim these rents as Housing Rent Allowance.
How to Claim Interest Deductions
Just as it is important for you to know and identify what you can claim as a deduction under the Income Tax Act, it’s equally important for you to know how to do it. Here’s everything that you will need to claim your tax benefits successfully.
1. Proof of Property Ownership
Tax benefit on home loan can be enjoyed only by property owners, for which you must be able to prove your ownership to the relevant authorities. You may even be paying interest on the home loan, or helping the borrower repay their loan, but only the legal owner of the property is entitled to tax benefits attached to their loan.
In the case of joint ownership, the percentage of deductibles they can claim is the same as the share they hold in the property. Both owners would be eligible to claim up to Rs 200,000 each, if they are in self-occupied properties.
2. Date of Property Purchase or Completion of Construction Document
For interest deductions to be claimed on properties that are already constructed, or have just completed construction, you must be able to document the dates and show them as proofs. This is applicable for Section 24 deductions among other things.
3. Borrower Details
If you’re the owner of the property and it is you who wants to claim these tax benefits, your name must be mentioned in all relevant housing loan documents.
4. Lender Certification
You will also need a certificate from your lender that states your home loan details such as the principal amount and interest rate to claim your tax benefits. This information helps authorities evaluate how much tax relief you’re eligible for, based on the value of payables. If you’re claiming the municipal tax you’ve paid, the certificate for that too must be attached.
The Final WordAny homebuyer, be it their first-time or second, benefits immensely from the tax concessions that come with the availing of a home loan. What’s more is that you seek a home loan from lenders like Bajaj Housing Finance Limited, your savings are unparalleled, thanks to their competitive interest rates and attractive lending terms. That, coupled with your income tax benefits, will only make your home loan deal that much sweeter.