The Multiple Benefits of Home Loan Tax Exemption

Every Indian dream of buying the perfect home. But with rising real estate prices, access to funds becomes an issue. This is where a Home Loan can be utilized as an essential tool to secure a home.

These loans not only allow you to protect your savings and purchase the right property but also help reduce tax outflow. But even with all these comforts, Home Loan EMI can put a serious dent on your cash reserves and lifestyle. Enter tax exemptions on Home Loans. These deductions on a property purchase allow you to make—or save—money. They also help ease the pressure on your pockets and make it worthwhile to invest in real estate properties.

Let’s take a look at the deductions available when you apply for a Home Loan:

Exemption on Interest

If you’re paying massive amounts of interest on the Home Loan you’ve recently procured, you can claim the interest components on the EMIs as the deduction. For this to happen, you need to be both the owner and the co-borrower in the loan application.

The interest component will be listed as a loss under the ‘Income from House property’ head and can be deducted against other heads of income in your income tax, including salary. This result in a lower taxable income and the tax you pay on that income. The total sum exempted under interest is either Rs.2 lakh or the amount you pay towards the interest, whichever is lower.

Tax Deduction on Principal Repayments

When you’re paying your EMIs, the amount that goes towards your principal is also eligible for tax exemptions under Section 80C of the Income Tax Act. The total sum you pay towards the principal or Rs 1.5 lakh, whichever is lower can be deducted under Section 80C.

Deductions Allowed on Stamp Duty and Registration Charges

When buying a house, you need to get it registered and pay stamp duty which is usually set at 7 to 10% of the total property’s value depending on the state where the property is located. This amount is also exempted from tax under Section 80C. The only condition is that it can be claimed only in the year it was paid.

Other Deductions Allowed Under House Loans

Apart from the above-mentioned exemptions, you can also claim deductions for the processing fees for the loan, service fees, or any Home Loan prepayment fees under Section 24.

You can also claim exemptions on Home Construction Loan or pre-construction interest by adding up the total pre-construction interest and claiming it in five equal installments. These tax benefits can also be availed if you stay in a rented accommodation along with the HRA benefits.

However, these benefits can change if the house you’re buying is under construction. Under construction, properties might be cheaper but the unavoidable delays put the strain on your pockets with the rent and EMI in one hand, and reduced tax benefits on the other.