Working through the financial aspects of buying a home can be complex, especially when understanding the tax implications. For many, the pinch of monthly house loan EMIs is softened by the tax benefits that come with them. Understanding these benefits can ease your tax burden and help you manage your finances more efficiently.
In this blog, we’ll dive deep into how you can maximise your savings through tax benefits on your house loan EMIs, offering practical insights and guidance to make the most of these opportunities.
Understanding Section 80C: Deduction on Principal Repayment
The first option for tax rebates on your house loan is Section 80C of the Income Tax Act.
● Maximum Deduction Limits: You can claim a deduction of up to Rs. 1,50,000 annually under this section, which includes the principal repayment of your house loan. This deduction is part of the overall limit of Section 80C, which also covers other investments like PPF, NSC, and ELSS.
● Eligibility Criteria: To qualify, the house property must not be sold within five years of possession. Selling the property within this period will reverse the deduction benefits, and the claimed amounts will be added back to your income in the year of sale.
Section 24(b): Deduction on Interest Paid
Deductions on interest paid on home loans can significantly reduce your tax liability under Section 24(b).
● How Much Can You Save? You can get a deduction of up to Rs. 2,00,000 on the interest paid towards their house loan EMI for a self-occupied property. This limit is applicable per financial year and is available across all owned properties.
● Additional Benefits for Let-Out Property: There is no maximum limit for deduction on properties that are let out. This can be particularly beneficial if you own more than one property and earn rental income from them.
Additional Deductions Under Section 80EE
For first-time homeowners, the government offers additional relief under Section 80EE.
● Deduction for First-Time Buyers: An additional deduction of up to Rs. 50,000 can be claimed on interest paid over and above the limits under Section 24(b).
● Duration of Benefit: This deduction is available until the loan repayment continues and can be claimed after exhausting the limits under Section 24.
Additional Deductions Under Section 80EEA
● Eligibility: The taxpayer must be an individual and a first-time homebuyer. The home loan must be sanctioned between 1st April 2019 and 31st March 2022, with the property's stamp duty value not exceeding Rs. 45 lakh. This deduction is over and above the Rs. 2,00,000 under Section 24(b).
● Deduction Amount: Under Section 80EEA of the Income Tax Act, individuals can claim an additional deduction of up to Rs. 1,50,000 on home loan interest for the acquisition of a residential house property.
The Impact of TDS on Purchase of Property
Understanding the TDS on Purchase of Property can save you from future tax hassles.
● TDS Deduction at Source: As per the guidelines, 1% TDS is applicable on the purchase of property exceeding Rs. 50 lakhs. It is important to ensure that this TDS is duly deducted and deposited under your PAN by the seller, as it forms a part of your tax records.
● Claiming TDS: The amount deducted as TDS on purchasing a property can be claimed as a tax rebate. Ensuring proper documentation and receipts can help you claim this amount effectively.
Maximising Benefits: Combining Deductions
Combining various sections can help you maximise your tax savings effectively.
● Strategic Planning: Use the deductions under Section 80C for principal repayment and Section 24(b) for interest deduction to maximise your benefits. For those eligible under Section 80EE, further maximising the deductions ensures a greater reduction in tax liability.
● Professional Advice: Consulting a tax professional can help plan and combine these deductions effectively based on your specific financial situation.
Reaping Joint Home Loan Benefits
Joint home loans can be a savvy financial strategy, not just because they are easy to approve but also because they enhance tax benefits.
● Sharing the Burden: When you opt for a joint home loan, both co-borrowers can claim separate deductions on both principal and interest amounts under Sections 80C and 24(b), respectively. This effectively doubles the tax-saving potential if both are contributing to the EMI.
● Conditions Apply: To claim these benefits, both borrowers need to be co-owners of the property and contribute to the loan repayment. This setup can significantly lighten individual tax liabilities, making it a popular choice among couples and family members.
Conclusion
Understanding and utilising the tax benefits on house loan EMIs can lead to significant financial relief. These deductions reduce your tax outgo and make home ownership more economical in the long run. By staying informed and making savvy decisions, you can turn the tax code to your advantage and enjoy your dream home without bearing an undue financial burden.