The Government of India (GOI) is undertaking several measures to improve the credit market in India, especially concerning the real estate sector. With initiatives such as Pradhan Mantri Awas Yojana and Pradhan Mantri Jan Dhan Yojana, the Indian government is ensuring home buyers to avail home loans for affordable housing at convenient terms.
In Budget 2019, the Finance Ministry stipulated additional provisions as tax benefits on home loan that caters to the advantage of home buyers.
Subsequently, in the latter half of 2019, GOI has already sanctioned Rs. 70,000 Crore and Rs. 30,000 Crore to financial institutions to ensure that lenders provide advances at lower rates of interest. It is further substantiated by the latest RBI step that states that home loan interest rates will be pegged with the repo rates from now on.
This period in Indian economy is ideal for homebuyers to avail housing loans, owing to falling rates of interest and multiple tax benefits.
Tax implications on home loans
When availing a housing loan, it is essential to learn about the tax implications on your advance. Home loans constitute a significant portion of your taxable income, and any exemption in that respect can go a long way in lowering your tax obligation.
The tax benefits apply to both the components of a housing loan – principal and interest. This following section enumerate everything that you need to know about saving tax when you avail a home loan –
You can claim tax exemption under Section 80C on the principal component of loans. An annual exemption of Rs. 1.5 Lakh is allowed under this section. This clause applies to both self-occupied and let-out properties.
Regardless, the Income Tax Department has stipulated specific provisions which are to be met by you to receive home loan tax benefit under Section 80C. These are –
- In case your purchased property is under construction, this section does not apply to your loan until such construction is completed.
- You cannot sell the property in question within the next 5 years of its purchase.
A tax benefit on a joint housing loan is also applicable under Section 80C; wherein each co-borrower is allowed deduction of Rs. 1.5 Lakh on interest payment.
Additionally, you can claim a tax deduction on the amount spent on
- stamp duties and
- registration fees
-in regards to a housing loan in the year of availing such credit.
You can claim home loan tax exemption under Section 24(b) on account of annual interest amount paid. In case the property in question is self-occupied, the exemption limit is set at Rs. 2 Lakh. If it is a let-out property, you can claim tax exemption on the entire interest amount that you pay annually. However, if a property is not self-occupied, owing to reasons of employment or occupation, the limit is capped at Rs. 2 Lakh.
If your house is under construction, such construction should be completed within 5 years. In case the construction period exceeds it, you can only claim exemption up to Rs. 30,000.
Section 80 EEA
This section is also an interest-oriented tax exemption. The Government of India introduced this section to support its PMAY scheme further. Section 80 EEA is exclusive to first-time homebuyers wherein they can claim Rs. 1.5 Lakh as an exemption on and above Section 24(b).
Consequently, it brings up their annual tax deduction in regards to interest payment to Rs. 3.5 Lakh. This deduction is only applicable to loans availed between April 2019 – March 2020. By affordable loans, the GOI means any housing credit within Rs. 45 Lakh.
Considering such facilities as add-on leverage to the home loan tax benefit, the present seems the most convenient time to avail housing loans. All that potential borrowers need to do is compare lenders and look into their offered array of features on their financial product, before settling upon one.