Owning a home is a matter of pride for most Indians. For majority of the people, it is a long cherished dream. However, considering the constant increase in real estate property prices, it is not easy for everyone to purchase a house exhausting all the savings. Thus, most people go for home loans to turn the process of home buying easier on the pocket. Getting a home loan is no more difficult with banks and several financial entities offering such loans on easy clauses. Moreover, one of the remarkable plus points of getting a home loan is that it helps you save tax. By getting a home loan, you become eligible for tax rebates under Section 24 (b) and Section 80 (c) of the Income tax regulations. Whether you are planning to 2 BHK flats in Lucknow or something larger, it would be wise if you assess your capability to repay and sustain the payments for a long period of time.
Tax Benefits Estimation
Under Section 80 (c), on principal repayment, you will become eligible for a tax deduction up to Rs. 1.5 Lakh. Moreover, under Section 24, deductions are allowed on the interest of the loan you have acquired. For a self-occupied property, this is restricted to Rs.2 lakhs. On the other hand, for a property that you have offered for rent, you can claim unlimited amount of interest as deduction under Section 24.
What Should be Done for a Self-occupied Property?
According to the I-T Act, the total limit under Section 80 (C) permits a total deduction of Rs.1.5 Lakh, no matter how much interest is paid. But, you should be careful while requesting for a loan as it will save considerably on your tax outgo.
Opting for a Joint Home Loan May Be Beneficial
Whether you are planning to purchase 2 BHK flats in Lucknow or apartments bigger than that, you will be able to enjoy huge benefits by opting for a joint home loan. You will not only be able to share your debt-burden with your co-borrower but at the same time, will be able to request for a higher amount of loan since the income of your co-borrower will be taken into account. From taxation perspective, a joint home loan is better as under Section24 of the Income Tax Act, the co-borrowers are eligible to claim tax deductions against the repaid interest and under Section 80 (C) against the repaid principal amount. Each co-borrower will be able to enjoy tax benefits proportionately with respect to the interest and principal paid in a financial year.
Remember, the above mentioned tax benefits can be enjoyed only after you get the possession of your property. This will not be applicable in any way for a property which is still under construction. Again, if you are already bearing EMIs for a property that is under construction, you will not be liable to claim any deduction for the principle repayment until the completion of the construction work. The advantages of tax deduction can be availed for the interest component but just from the year of construction completion. In spite of this, you will be able to claim for all the interest paid during the years of construction.
Why Don’t You Offer Your Property on rent?
In specific instances, people choose to stay in a rented property even after buying a property with a home loan. Specifically when your workplace or your kid’s school is a bit far from your newly-bought apartment, you may choose to stay in your rented house. In this case, it would not be wise to keep your property vacant but offer it for rent. In this instance, according to the I-T Act, irrespective of whether you have rented a house or not, the annual rent will be entitled to a standard deduction of 30% which is much more than the interest paid on a loan. For such a property, you need to pay tax on the deemed income you extract from the property. Know that no limit is there on the amount of interest that can be claimed as a deduction. Looking from this perspective, it is better to offer your property on rent rather than keeping it vacant.
Browse through the blog to know how to save tax on your home loan. This blog will be useful for those planning to get loans for home purchase.
