1. Build your Credit Score
2. Reduce your Current Borrowing / EMI Costs
Buying a new home is enough to get anyone excited. Whether that’s because of the monetary scale of the transaction, or due to the size of the property brought, or due to the fact that it is the very first property one is buying is tough to tell. It could well be a culmination of all these factors.
Buying a home costs money. In most cases, people need to take loans for making such a purchase. Therefore, this means paying interest in addition to the principal amount. For the common man, making such a purchase through a home loan is a huge investment.
Fortunately for the common man, the Government of India is actively interested in making this dream come true for all. To that end, it encourages people to purchase homes by giving them a host of benefits like home loan tax deductions under section 80C, and various tax benefits under central government schemes like the Pradhan Mantri Jan Dhan Yojana. These solve the problems of property accessibility and affordability.
In this article, we are going to show you top 6 home loan benefits.
Deduction for the interest paid on housing loan
Deduction of interest paid on home loan during a property’s pre-construction
Deduction in the payment of the principal amount
Deduction for registration charges and stamp duty
Addition deduction under the section 80EE
Addition deduction under the section 80EEA
Let us now see each of these, one by one.
There are some prerequisites and conditions before you can get any deduction under this heading.
Firstly, and this is a very basic one, you have to use the home loan only for buying a home, and for nothing else.
Secondly, the property’s construction needs to be finished 5 years from the end of the year on which the home loan was taken.
Thirdly, EMIs that you pay every month is not just the interest but both the principal and the interest. You can apply for a tax deduction on the interest part of the EMIs paid over the course of the year.
This deduction can be to a maximum amount of Rs. 2,00,000 per year, according to Section 24. When it comes to self occupied and let-out properties, the maximum amount of tax deductible interest is Rs. 2,00,000. However, in this case, you can only claim the deductible amount if the construction is complete.
So, you get deduction on interest paid for home loan taken for a fully constructed property. However, what happens when you have already taken the home loan for an under-construction property, and are paying EMIs every month? Does this mean that you can’t get any deduction or tax benefits as the property is under-construction?
Not at all! Here’s why.
According to the rules and regulations of income tax, you are eligible for claiming tax benefits for EMI interest on under-construction properties as well. This is called the Pre-Construction interest and is made as deductions of 5 equal installments from the year in which the property was bought or constructed.
This is above the tax deduction that you are eligible for the property’s income. However, remember you can only apply for a tax deduction under this heading to a maximum of Rs. 2,00,000.
More good news! You get tax deduction on not just the interest paid, but also on the principal repayment under Section 80C. However, the maximum amount that you can claim is Rs. 1.5 lakhs.
There are a few conditions as well: You cannot sell off the property within 5 years of buying it. If you do, deductions already made shall be added back to you at the time of property sale.
Did you know that even the amount you spend on the home loan stamp duty and registration charges are tax deductible? It’s true. Under Section 80C, these are tax deductible, but to the limit of Rs. 1.5 lakhs. The catch? You can only do so on the year in which these have occured.
It seems that the Indian Government is bent on helping home buyers.
Under Section 80EE, you get an additional deduction. However, just like with all other things, this comes with a few conditions as well. For instance, the loan amount cannot be more than Rs. 35 lakhs.
Secondly, the total value of the property cannot be more than Rs. 50 lakhs.
Thirdly, such a home loan needs to have been sanctioned between 1st April 2016 and 31st March 2017.
Fourthly, on the day this loan is sanctioned, the candidate should not own any other homes. The money deductible is to a maximum of Rs. 50,000.
This allows you to have upto Rs. 1,50,000 deductible. However, to claim this, the property’s stamp value should not be more than Rs. 45 lakhs.
Secondly, the loan needs to have been sanctioned between April 2019 and March 2020.
Thirdly, on the day of the loan sanction, the candidate should not own any other home.
The fourth condition is that the candidate should not have availed the benefits under Section 80EE.
How can I get a loan for a house?
To get a home loan, you need a credit score of 580 or higher. This gives you a chance at an FHA-insured mortgage that comes with a downpayment requirement of just 3.5%. However, you’ll need to give a downpayment of 10% if your credit score is in the 500-579 range.
Can I take 2 home loans?
There are two main conditions. The first condition is that the property in question should be completely free from legal problems. Secondly, the borrower needs to be capable of repaying both loans.
What is the tax benefit on second home loan?
You can get deduction for interest payable on loan for construction, repair and renovation under the Section 24B of the Income Tax Act.
As you have seen, you can save a fair amount when purchasing a new home with a home loan. Thanks to the section 80E and its subheadings, you can save money through sizeable tax deductions.