Last-Minute Tips to Save Tax by availing Home Loans
Every year, as the tax filing season begins, people look for various ways to reduce their tax liability. And, home loans are one of the best ways to get tax benefits. Read on to know how you can save tax by availing home loan.
Buying a new home is probably one of the most important financial decisions you may take in your life. And, if you wish to apply for a home loan, you would want to ensure that your finances are in order so that you can repay the amount without any hassles. But, financial planning for home loans must not be limited to making fund arrangements but also knowing about the home loan-related tax benefits.
When you borrow a home loan, you are entitled to enjoy several tax advantages. If you are looking for some tax saving tips on home loan, you can claim deduction under different sections of the Indian Income Tax Act.
Tax benefit on repayment of principal amount
When you pay the EMI to the lender, the amount consists of two critical components – principal amount and the interest amount. During the latter half of the repayment period, a large portion of the EMI goes towards repaying the principal amount.
The amount you repay is eligible for tax benefit and you can reduce the amount from your overall tax liability in a financial year. You can claim a maximum deduction up to Rs. 1.5 lakhs in a financial year under Section 80 C of the IT Act. However, to claim this benefit, you must meet the following requirements:
- You must not have sell the property for five years from the date of registration
- If you sell the property before five years, the tax deduction you may have availed earlier will be reversed and added to your income and it will be a taxable income
Tax benefit of repayment of home loan interest
One of the major portions of the EMI amount that you repay to the lender constitutes the interest component, especially during the initial few years. The interest levied by the lender directly affects the EMI amount and subsequently the affordability. So, while you compare the home loan offers from different lenders, you must choose the lender with lowest interest so that the EM is affordable.
While you can also extend the tenure to make the EMI affordable, you can also claim tax benefit of interest you repay under Section 24 of the Indian Income Tax Act. The maximum deduction available in a financial year is Rs. 2 lakhs.
If you have availed a home loan for home construction, you can claim the tax deduction on repayment of principal and the interest amount but only after the construction is completed.
Tax Benefit on the stamp duty
Home loan tax benefit is not limited to repayment of the principal and the interest amount. But, you can also claim tax deduction on the stamp duty. It is a mandatory charge that you must incur to register the property on your name. It is levied by the government of India and it is an integral part of the home buying process.
While the stamp duty can be a significant amount, you can claim tax deduction on it. This means you can include the stamp duty in your annual tax deductibles and reduce your tax outgo. The maximum tax benefit you can claim Rs. 1.5 lakhs under Section 80 C of the IT Act.
Thus, there are many ways you can save taxes on home loans and reduce your overall tax liability.