Owning a home in one’s name has always been the middle-class Indian’s dream. A sense of safety and ownership comes with it—also good marriage proposals according to our moms at least.
But let’s be honest, purchasing your home requires huge capital, especially if you live in the city due to higher real estate prices, construction costs, and rising inflation rates. How can one possibly afford all this?
Don’t worry, there is one superhero who will fly in to save your day. This is none other than “Home Loans”. A home loan reduces your burden to secure capital for your dream home. With a good credit score and a steady income, you will be eligible for a good loan amount.
Not only this, but you can also claim tax benefits on your home loan EMIs. In this article, I’ll talk about the different sections under which you can claim tax benefits, the maximum deductions, and how to optimize to maximize tax savings.
Types of Home Loans Eligible for Tax Benefits
When you compare home loans, it’s crucial to understand which types qualify for tax benefits. The following table outlines the eligible loan types:
| Loan Type | Eligibility For Tax Benefits |
| Home Purchase Loans | Yes |
| Home Construction Loans | Yes |
| Home Improvement Loans | Yes |
| Home Extension Loans | Yes |
| Joint Home Loans | Yes |
Tax Benefits Under Section 80C:
Section 80C of the Income Tax Act allows you to claim deductions on the principal repayment of your home loan. Here’s what you need to know:
- Eligibility: Individuals and joint borrowers
- Maximum Deduction Limit: Rs. 1,50,000 per annum
- Claiming the Deduction: Submit relevant documents to your employer or claim it while filing your income tax return
- Impact on Tax Liability: Reduces your taxable income, thereby lowering your tax liability
When you compare home loans, factor in the potential tax savings under Section 80C to make an informed decision.
Tax Benefits Under Section 24:
In addition to Section 80C, Section 24 offers tax deductions on the interest portion of your home loan EMIs. Let’s explore the details:
| Property Type | Maximum Deduction Limit |
| Self – Occupied | Rs. 2,00,000 per annum |
| Let – Out | No Limit |
Furthermore, you can claim a deduction on the preconstruction interest paid during the construction period. This deduction can be claimed in five equal installments starting from the year in which the construction is completed or the property is acquired.
Compare home loans and their interest rates to maximize your tax benefits under Section 24.
Tax Benefits for First-Time Home Buyers (Section 80EEA):
If you are a first-time home buyer, you can avail additional tax benefits under Section 80EEA. Here are the key points:
- Eligibility: First-time homebuyers with a loan sanctioned between April 1, 2019, and March 31, 2022
- Maximum Deduction Limit: Rs. 1,50,000 per annum
- Conditions: The loan amount should not exceed Rs. 45 lakhs, and the property value should be up to Rs. 45 lakhs
- Interaction with Other Benefits: This deduction is over and above the benefits under Sections 80C and 24
Compare home loans and opt for the one that best suits your needs to take advantage of this additional tax benefit.
Tax Benefits for Affordable Housing (Section 80EEA)
The Indian government has introduced tax benefits to encourage affordable housing. If you are considering buying an affordable home, here’s what you should know:
- Definition of Affordable Housing: Residential units with a carpet area not exceeding 60 square meters in metropolitan cities and 90 square meters in non-metropolitan cities
- Eligibility: First-time homebuyers with a loan sanctioned between April 1, 2019, and March 31, 2022
- Maximum Deduction Limit: Rs. 1,50,000 per annum
- Conditions: The loan amount should not exceed Rs. 45 lakhs, and the property value should be up to Rs. 45 lakhs
- Interaction with Other Benefits: This deduction is over and above the benefits under Sections 80C and 24
When you compare home loans for affordable housing, keep these tax benefits in mind to make the most of your investment.
Documenting Home Loan Tax Benefits
To claim tax benefits on your home loan, proper documentation is essential. Keep the following documents handy:
- Home Loan Statements
- Interest Certificates
- Possession Letter
- Completion Certificate
- Sale Deed or Allotment Letter
Compare home loans and choose a lender that provides clear and timely documentation to facilitate a smooth tax-filing process.
Common Mistakes to Avoid
While claiming tax benefits on your home loan, be cautious and avoid these common mistakes:
- Not claiming all eligible deductions
- Incorrect documentation
- Missing deadlines
- Not informing the lender about the property’s status (self-occupied or let-out)
- Not opting for joint home loans when eligible
When you compare home loans, be thorough in your research to identify and avoid these pitfalls.
Frequently Asked Questions [FAQs]
Prepaying your home loan will reduce your overall interest liability. However, it may impact your tax benefits as the interest component of your EMIs will decrease.
Yes, you can claim tax benefits on a second home loan. However, the deduction limits under Sections 80C and 24 will be shared between both the loans.
Co-borrowers can claim tax benefits in proportion to their share in the home loan.
Conclusion
Claiming tax benefits on your home loan can significantly reduce your tax liability and make homeownership more affordable. By understanding the various deductions available under Sections 80C, 24, 80EEA, and the benefits for affordable housing, you can maximize your savings. Remember to compare home loans, maintain proper documentation, and avoid common mistakes to ensure a smooth tax-filing process. If you have any doubts, consult with a tax professional for personalized advice.
Start comparing home loans today and take the first step towards claiming your rightful tax benefits!
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