Under the Income Tax Act, home loan borrowers repaying in advance can avail of tax benefits. With an income tax calculator, one can evaluate their total savings and home loan tax benefits to plan their finances accordingly.
Nevertheless, it is vital to know about these benefits to save on loan repayment.
Tax benefits on a housing loan
Depending on the property type, one can claim tax benefits on home loans that will enable them to secure their finances conveniently. Here are the tax benefits one can avail and save a lump sum:
- Interest deduction on a home loan
A borrower needs to pay housing loan EMI to repay the loan amount secured. This EMI amount comprises of two components- principal and interest. The overall interest paid during a fiscal year is eligible for tax deductions while liability calculation. As per section 24B of ITA, borrowers can receive a rebate of a maximum of Rs.2 lakh for their self-occupied residential property.
Further, applicants purchasing a residential property with a home loan and let out possess no limit on how much tax benefit they can avail of during annual interest payment. Additionally, for under-construction properties, tax benefits are claimable after construction completion.
- Deduction of interest for an under-construction property
Home loan tax benefit are also available during pre-construction periods. However, the construction must be completed within 5 years of availing a home loan. Under section 24B of the ITA, borrowers can enjoy a yearly interest deduction, given the total interest is divided into 5 equal instalments within Rs.2 lakh annual cap.
Also, this deduction is applicable during property acquisition and construction completion. Therefore, one can procure a loan at a lower home loan interest rate from any reputed financial institution and enjoy tax deductions on the interest paid. In addition, some financial lenders provide pre-approved offers for a seamless loan application process.
- Principal component deduction
Under the ITA Section 80C, one can enjoy a deduction up to Rs.1.5 lakh on the yearly principal repayment amount. Individuals can avail of this additional benefit on top of interest deduction, given the property is not sold within 5 years of acquisition.
Therefore, upon fulfilling this home loan eligibility criteria, one can accrue this tax benefit.
- Tax deductions on a joint loan application
Borrowers securing joint home loans are eligible for deductions from both the principal and interest components of their EMIs. These deductions are under Section 80C of the Income Tax Act. Depending on an individual’s repayment amount and contribution, joint home loan borrowers are liable for an interest deduction of up to Rs.2. lakh and Rs1.5 lakh on the principal repayment amount.
However, borrowers must co-own the purchased property to claim home loan tax benefits.
- Deduction of paid registration fees and stamp duty.
Under Section 80C of the ITA, an individual can avail a maximum deduction cap of Rs.1.5 lakh on stamp duty and registration fees paid during a home loan application. However, one can claim these deductions for the year in which the payments were initiated.
In addition to this, one can calculate their total deductions on a home loan by using a tax calculator. In the following section, one will find how borrowers use this calculator to compute tax benefits.
How to calculate tax deductions?
An online tax calculator is easy and convenient to use, fetching information regarding tax benefits one can claim on their home loan repayment amount, interest, and other charges.
The calculator feeds the following data to compute total deductions available for a particular financial year:
- Gross annual salary.
- Interest earned.
- Income from additional sources.
Upon inputting these data, the calculator will evaluate the applicable tax deductions and show the result instantly.
Therefore, by utilising this calculator, one can compute the home loan tax benefits and proceed with its application.
