Costs of brokerage, house purchase, doing the interiors, buying furniture and appliances, etc. – purchasing your dream home is an expensive affair. However, what if there was a way for your home loan to help you ‘save’ money? Yes, it is true. The Income Tax Act offers many tax benefits on home loans. Knowing about these tax benefits on home loans can help you correctly claim them. Moreover, if you have a second loan, you can also get some tax benefits. Here is all you need to know about income tax benefits on a home loan.
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Tax benefit on principal repayment
The tax benefits available on your home loan are in the form of tax deductions. These tax deductions can help you reduce your taxable income and thus save taxes.
You can claim a tax deduction of up to Rs 1.5 lakhs under section 80C of the Income Tax Act, 1961, for the principal repayment of the home loan. This deduction is available on stamp duty and registration charges as well.
Tax benefit on interest repayment
You can claim a tax deduction on the amount you pay as interest repayment on the home loan. This deduction is available for a maximum amount of Rs 2 lakh under section 24 b of the Income Tax Act, 1961.
Tax benefits for first-time borrowers
If you are availing of a home loan to buy your home for the first time, you can claim additional tax benefits under section 80 EEE on the interest repayments. This deduction is available over and above the maximum limit of Rs 2 lakh on interest repayment. However, there are certain conditions that you need to meet to claim this deduction.
Tax benefits on your second home loan
All the tax mentioned above benefits is available on a second home loan as well.
- You can also claim the tax deduction for the principal repayment under section 80C for your second self-occupied house. However, you need to hold the property for five years. If you sell it before five years, the amount would be added to your taxable income.
- You can claim the tax deduction on interest repayment under section 24(b), up to Rs 2 lakh. If your second house is let out, there is no upper limit on the maximum deduction amount for the interest repayment. However, the second house will be deemed self-occupied if it’s empty or is being used by parents.
- The maximum upper limit for tax deductions under sections 80C and 24(b) is capped at Rs 1.5 lakh and Rs 2 lakh, respectively, for both houses combined. You cannot claim more than the maximum limit, irrespective of the number of home loans you have.
Claiming tax benefits can help you save taxes, but only if you know them. Using a home loan tax benefit calculator would be best to know your tax savings and taxability on the home loan.
