Buying a home is a dream for many people, but the financial commitment that comes with it can be daunting. Fortunately, several tax benefits associated with home loans can help make the purchase more affordable. In this article, we’ll discuss some of the most significant tax benefits that many homebuyers are unaware of.
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Deduction of Interest on Home Loans
One of the most significant tax benefits of owning a home is the deduction of interest paid on home loans. The government allows homeowners to deduct the interest paid on their home loan from their taxable income. This deduction can help reduce the overall tax burden and make homeownership more affordable.
The interest deduction is available for the entire tenure of the loan, making it a significant tax benefit for homeowners. The maximum deduction limit for the interest paid on a home loan is up to Rs. 2 lakhs per annum for a self-occupied property. For rented property, there is no limit on the deduction of interest paid on a home loan.
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Deduction of Principal Repayment
In addition to the interest deduction, homeowners can also claim a deduction for the principal repayment made towards the home loan. Under Section 80C of the Income Tax Act, homeowners can claim a deduction of up to Rs. 1.5 lakh on the principal repayment amount. This deduction can help reduce the overall tax burden and make homeownership more affordable.
It’s important to note that the principal repayment deduction is available only for the principal repayment made towards the purchase or construction of a residential property. The deduction is not available for any other purpose.
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Tax Benefits for Joint Home Loans
If you have taken a joint home loan with your spouse or any other family member, you can claim tax benefits on the interest paid and principal repayment made on the home loan. In the case of a joint home loan, each co-borrower can claim a deduction of up to Rs. 2 lakhs on the interest paid on the loan.
Similarly, each co-borrower can also claim a deduction of up to Rs. 1.5 lakh on the principal repayment made towards the home loan. This can significantly reduce the overall tax burden for homeowners and make homeownership more affordable.
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Tax Benefits on Under-Construction Properties
Homebuyers who have taken a loan for an under-construction property can also claim tax benefits on the interest paid on the home loan. The deduction of interest paid on the loan can be claimed in five equal instalments, starting from the year in which the construction of the property is completed.
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Tax Benefits on Second Home
Homeowners who own a second home can also claim tax benefits on the interest paid on the home loan. However, the principal repayment amount is not eligible for a deduction. The interest deduction is available only if the second home is considered self-occupied. If the second home is rented out, the entire interest paid on the home loan is eligible for a deduction.
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Tax Benefits on Home Loan Balance Transfer
Homeowners who have transferred their home loan to another lender can also claim tax benefits on the interest paid on the new loan. The deduction of interest paid on the new loan can be claimed only if the transfer has been made within the financial year.
Conclusion
Owning a home comes with several tax benefits that can help reduce the overall tax burden and make homeownership more affordable. The deduction of interest paid on home loans and the deduction of principal repayment made towards the home loan are the most significant tax benefits.
Joint home loans, under-construction properties, second homes, and home loan balance transfers also come with tax benefits that many homebuyers are unaware of. A home loan agent can provide further information on these tax benefits and help you make an informed decision.
