During the 2020 union budget government has extended the additional tax deduction for first time home buyers.
The year 2020 has begun on a happy note for those dreaming of a home of their own for the government has extended the additional deduction of Rs 1.5 lakh on home loan interest till March 21. Now those who have missed out on the benefit in the last financial year will get yet another year to make their dream a reality.
It was in last year's budget that Finance Minister Nirmala Sitharaman proposed an additional tax deduction of Rs 1.5 lakh over and above Rs 2 lakh with an aim to give a helping hand to the middle-class people who intend to buy or construct a house for the first time and of up to Rs 45 lakh. She had then announced that the benefit will be made available for home loans sanctioned till March 2020. The same has now been extended to March 2021. Moreover, she has also announced that builders will get tax holiday on affordable housing projects approved till March 2021. The additional deduction of Rs 1.5 lakh, over and above the existing Rs 2 lakh, is being provided under the Section 80EEA.
Taking a considerate view of the demand from the real estate industry, which has been facing a huge slowdown and sluggishness in the demand for housing projects, to extend this additional interest rate benefit, the Finance Minister said: To realise the goal of 'Housing For All' and 'Affordable Housing', in the last Budget I had announced an additional deduction of up to Rs 1.5 lakh on interest paid on loans taken for purchase of an affordable housing. The deduction was allowed on housing loans sanctioned on or before March 31, 2020. In order to ensure that more person’s avail of this benefit and to further incentivise the affordable housing, I propose to extend the date of loan sanctioning for availing this additional deduction by one more year."
Home loan buyers will also indirectly benefit from the tax holiday on profits earned by the builders who offer affordable housing below Rs 45 lakh. This tax holiday -- provided under the section 80-IBA of the Income Tax Act -- was extended to projects approved by a competent authority during the period from June 1, 2016, to March 31, 2020. The same now has been extended by yet another year with an intention to "minimise the hardship in real estate transaction and provide relief to the sector".
The government move will benefit the middle-class first-time home buyers avail an enhanced cut on home loan interest and give a further boost to the present government's policy aim of 'Housing for All by 2022'.
Currently, for a self-occupied house, an Indian citizen can avail a tax break on the principal amount repaid on the housing loan as well as the paid on it. Under section 80C of the Income Tax Act, you get a deduction on the principal loan amount repaid up to Rs 1.5 lakh a year and Rs 2 lakh per annum under section 24 on the interest component.
Now, let us take a look at the tax benefits on home loans homebuyers should be aware of. Since the above deductions are allowed from the gross total income before calculation of tax -- thereby reducing the total amount payable as tax -- before submitting their annual tax return, it is essential to know how all one can lower the taxable income for a stipulated financial year on home loan front. The details could well help those who were missing out on these tax benefits for one reason or other.
Know all tax benefits on home loans
Even the beginners or first-time homebuyers will be knowing that a loan EMI will be having two components – the interest component and the principal one. The rules under India’s Income Tax Act grants tax exemptions on both components of the home loan subject to certain conditions. Currently, those going in for home loans are claiming tax exemptions as per the provisions of the Income Tax Act, 1961.
Now, here are the sections under this Act which are your gateway to save tax on your home loans. Those who need assistance in finding out whether going by the present salary you are earning whether you will fall under this category or not can easily calculate the exemptions with the help of an income tax calculator.
Section 80C: Homebuyers can claim tax exemptions under Section 80C of the Income Tax Act of up to Rs 1.5 lakh on the principal amount repaid on the home loan annually.
Section 24b: Borrowers can claim tax exemptions of Rs 2 lakh on the annual home loan interest under this section. Also, those who are yet to move into their new house or flat, which may be under construction, can also avail tax benefits but under certain terms. Known as the pre-construction interest, under this clause, one can claim tax exemption in five equal instalments starting from the year in which the construction of the property concerned is acquired or when the works on the property is completed.
Section 80EEA: Homebuyers who are purchasing a house or flat for the first time can claim additional tax exemptions of up to Rs.1.5 lakh as per Section 80EEA of the Income Tax Act (conditions apply). This exemption can be claimed over and above the tax benefits availed under section 80C, according to the Finance Act 2019.
On your second property (home/ flat etc): Homeowners can avail tax benefits even on their second property, provided it is not let out on rent, says the finance act of 2019. Make sure you check out on the tax savings and other advantages offered by home loan providers before purchasing that second property.On joint loan with spouse or co-applicant: There are various advantages that a home buyer can avail while applying for a home loan with a co-applicant; one of which is the tax benefits on a joint home loan. Both you as well as your co-applicant can claim tax exemptions individually under sections 80C and 24b if the ownership of the property is getting registered in the name of the co-owner (i.e. co-borrower) as well.
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