Potential homeowners can witness a few changes in the income tax rules, especially related to a home loan from the new financial year. These changes refer to home loan tax benefits, which can prove to be an essential means to save on finances.
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In order to reduce tax outgo, existing and new home loan borrowers should be aware of the income tax deductions. The Indian Government has taken the initiative to make more people invest in the real estate market by offering these tax benefits.
One can consider the following article to learn more about the tax benefits on a housing loan as of April 1 2022.
Deduction for interest paid on housing loan
A housing loan EMI essentially consists of two parts:
- Interest
- Principal
As per Section 24 of the Income Tax Act, home loan taxpayers can enjoy deductions up to Rs. 2 lakh on the interest paid towards their loan. However, these deductions are applicable on properties whose construction is finished within 5 years. For let-out properties, there is no upper limit for claiming the interest amount.
If the house construction does not end within the said timeframe, one can claim only up to Rs.30,000.
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Deduction on interest paid towards home loan during the pre-construction period
There might be scenarios when potential homeowners buy an under-construction property and pay EMI without actually moving in. In that case, the Income Tax Act allows an individual to claim a deduction of a pre-construction interest. It is a deduction into five equal instalments starting from the year the property was acquired.
Further, this deduction is over and above the one, a buyer is eligible to claim from their property house income. Nevertheless, the maximum eligibility remains at Rs.2 lakh.
Deduction on principal repayment
Under Section 80C of the Income Tax Act, a homeowner is eligible for a tax deduction for paying the principal part of a loan. One can claim up to Rs.1.5 lakh for a financial year. So, while obtaining a housing loan, potential borrowers should consider evaluating their principal portion of the EMI to get clarity on these deductions. To calculate the principal, they can use a home loan EMI calculator.
This online tool requires information like loan amount, tenor and interest rate and fetches details regarding the loan EMI. It also shows the principal and interest details accurately.
Deduction for stamp duty and registration charges
One can claim the stamp duty and registration charges paid in a particular year under Section 80C of the Income Tax Act. The overall deduction limit is Rs.1.5 lakh.
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Additional deduction under Section 80EE
Under certain conditions, homeowners can get an additional deduction of up to Rs.50,000 as per Section 80EE of the Income Tax Act. The conditions are:
- The loan amount should be a maximum of Rs.35 lakh or less than that, and the property’s value should not be more than Rs.50 lakh.
- Borrowers who secured this loan from April 1 2016, to March 31 2017, can get this benefit.
- This benefit is only available for first-time homeowners.
So, it is evident that owners planning to secure a loan in 2022 cannot avail of this deduction.
Additional deduction under Section 80EEA
During the financial Budget of 2019, the Finance Ministry announced a new deduction for home loan borrowers up to Rs.1.5 lakh. Here are the conditions one needs to meet to avail of this deduction:
- The property’s stamp value should not exceed Rs.45 lakh.
- Initially, loans sanctioned between April 1, 2019, to March 31 2021, were eligible for this benefit. However, in Budget 2022, the date was extended to March 31 2022.
- The deduction is available for first-time home buyers.
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Deduction for a joint home loan
Individuals securing a joint home loan can claim deductions up to Rs.2 lakh each on interest payments. Additionally, for principal payment, they can avail of deductions up to Rs.1.5 lakh each under Section 80C of the Income Tax Act.
Both parties should be co-owners of a property to obtain this benefit. This way, one can claim a larger tax benefit.
So, before filing tax returns or applying for a housing loan, potential individuals should consider the aforementioned deductions for maximum benefits. They can also use an income tax calculator to calculate their tax due accurately.
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