As the word “tax” comes to our mind, we always think about various ways through which we could avoid paying it. But I think paying your fair share should be considered one of the most patriotic activities someone can engage in. And instead of avoiding, why shouldn’t we plan it in such a manner so that we can minimize the tax liability over a financial year by making the best use of the various tax exemptions i.e. income tax benefit.
Taking a Home loan is one of the best way to save huge amount of tax as it offers several tax exemptions to a taxpayer. A home loan is a big responsibility especially for middle income people but tax benefit is its best part. On the other hand, home loan creates an asset. The government wants you to invest and provides lot of income tax deduction and exemptions when investing in a home.
Various sections under Income Tax Act which provide income tax benefit on Home Loan
- Section 80C – Income tax benefit on Home loan (Principal amount)
A maximum tax deduction of Rs. 1.50 lacs is allowed on the amount paid as repayment of Principal Amount of Home Loan by an Individual/HUF. It also includes amount invested in PPF account, National savings Certificates, Senior Citizens savings Scheme etc. Even the amount paid as Registration fee & Stamp duty are also allowed as deduction and can only be claimed in the year they were paid. It is important to note that tax benefit of home loan is allowed only after the construction is complete.
- Section 24 – Income tax benefit on interest on Home loan
A maximum tax deduction of Rs. 2.00 lacs is allowed under this section for a property occupied by the taxpayer. If in case the property is not self-occupied, no maximum limit has been prescribed and thus the taxpayer can take tax deduction of the full interest amount.
Also Read: Difference between a LAP and Home Loan
- Section 80EE – Income tax benefit on Interest on Home loan (First time buyers)
Buying your first house on a loan comes with multiple tax benefits. This section provides for an additional deduction of Rs. 50,000 for Interest on Home Loan. This income tax benefit would be over & above the deductions provided in Section 80C and Section 24. However, benefit of this deduction could be availed till the time the repayment of the loan continues.
Tax Benefits for Joint Owners
There are income tax benefits on home loan for joint owners. Like for example if you take a loan with your spouse and agree to share a ratio of 50-50 for loan repayment, you can avail deductions under Section 24 and Section 80C separately. And this can help you reduce your overall expenses considerably.
It would not be wrong if I say that the income tax benefit which a person can avail through home loan is like a cherry on the cake. On one hand, you can fulfill your wish of owning your dream house and on the other hand, the tax deductions granted reduces your tax outgo & helps in managing your cash flows better. Hence, income tax benefit is the best part of a home loan.