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Can you save tax with a home loan?

Buying a house to save tax is another major reason to buy a flat and avail the loans for that purpose. Home loans can be availed for a tenure of a maximum of 30 years, depending on the age of the borrower. The borrower can avail of tax benefits on home loans for a period as long they continue to repay the installments along with the principal & interest amount. The borrower can save tax on home loans on various sections as prescribed by the Government of India. It is better to invest in a property to save tax as various provisions are being made by the government to encourage the taxpayers to invest in properties and save tax. The Government of India also encourages people to invest in real estate as the construction sector is the second largest employer in India after agriculture and also due to the cost being high of the investment in property it provides a great boost to the economy. Also, the government receives huge amounts through a collection of taxes like GST, registration & stamp duty charges. The investment in the property never goes to waste as the prices keep on rising and thus the investor can make good returns out of the investment in real estate.

Housing is a basic requirement for the individual family. Thus the demand is many a time high for the real estate sector. The formation of nuclear families is also rising migration is a major reason for the demand for real estate in the urban region. Housing loans can be obtained through any lender of the individual’s choice and thus the lender should be chosen such that the ones who charge the lowest interest rates to the borrowers. Some lenders charge the interest rates exorbitantly to the borrowers thus the customers should be careful while availing of loans from the lenders. There is a capping on the payment of the loans installments to Rs.2 lakh every year beyond which tax exemption cannot be gained. Thus paying excessive monthly EMI is of no use for the tax benefits. If an individual invests the income gained from house property through the sale of the property and then re-invests elsewhere then in that case tax exemption can be availed on the income gained. The home loans if taken for a shorter tenure than in that case for the lower number of years tax benefit can be gained but the advantage is that the borrower can save money on interest repayment to the lender and can become early debt-free.

Tax benefits on the property:

  • Deduction on interest repayment:

The tax exemption can be claimed on the principal amount under section 80C. The maximum amount of tax exemption that can be claimed is Rs.1.5 lakh. However, there is a condition that the property should not be sold before 5 years from the date of possession. In the case of selling property before 5 years, the income tax can be added in the subsequent years.

  • Deduction on stamp duty & registration charges:

The charges paid for registration & stamp duty tax exemption can be claimed under section 80C with a total benefit of Rs.1.5 lakh. This exemption can be claimed only in the year in which the charges have been paid.

  • Additional exemption under section 80EE:

The exemption under section 80EE can be claimed up to a maximum of Rs.50,000. There are certain conditions under which the tax exemptions can be claimed.

  • The amount of loan taken should not be more than Rs 35 lakh & the cost of the property should not be more than Rs. 50 lakh.
  • During the date of purchase, the individual should not own any other property.
  • Additional exemption under 80EEA.

Under this section, a tax benefit can be claimed of Rs.1,50,000. For this deduction following criteria is applicable:

  • The stamp value should not go beyond Rs.35 lakhs.
  • On the date of sanction, the individual should not own any other property.
  • Dual benefits of taxes under various sections cannot be claimed.
  • Deduction for joint home loans:

Under the joint home loans the deductions can be claimed under section 24 for the amount of Rs. 2 lakh for the interest repayment and under section 80C for principal repayment of Rs.1.5 lakh. Both the co-owners can claim tax benefits in case of the property registered under the joint name. Thus loans taken jointly can help in larger exemptions.

Conclusion:

Thus the property buyer can claim tax benefits under various sections of the income tax act. The tax exemptions are given to the property buyers to reduce the burden of loans and liabilities on the purchase of the property. Thus various provisions are being made under the various section to help borrowers save tax on income tax payments.

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