The Ultimate Guide to Income Tax Benefits on House Loans

Owning a home is a dream for many. However, it’s not always feasible to purchase a property outright, and that’s where home loans come in. Fortunately, home loans offer many benefits, including tax benefits, making them an attractive option for people looking to buy their own homes.

In this post, we will take a closer look and find out everything you need to know about the Income Tax Benefits on Home Loans:

What exactly does the Home Loan Tax Benefit mean?

The home loan tax benefit is a tax deduction that is available to individuals who have taken a loan to buy or construct a house. This deduction can be claimed for the interest paid on the loan and the principal repayment.

The tax benefit on the interest paid on the home loan is available under Section 24 of the Income Tax Act, of 1961. Under this section, the interest paid on the home loan is deductible up to a maximum of Rs. 2 lakh per year. This deduction is available only for a self-occupied property.

The tax benefit on the principal repayment of the home loan is available under Section 80C of the Income Tax Act, 1961. Under this section, the principal repayment is deductible up to a maximum of Rs. 1.5 lakh per year. This deduction is available for both self-occupied and rented properties.

It’s important to note that to claim these deductions, the property must be constructed within five years of taking the loan, and the construction must be completed.

Ultimate Tax Benefits of Home Loan

The tax benefits of a home loan are significant and can help you save a lot of money in the long run. Let’s take a quick look at some of the tax benefits of a home loan:

  • Tax Benefit on Interest Paid- As mentioned earlier, the interest paid on a home loan is tax-deductible under Section 24 of the Income Tax Act, 1961. This deduction is available up to a maximum of Rs. 2 lakh per year for a self-occupied property. This deduction can significantly reduce your taxable income and help you save money on taxes.
  • Tax Benefit on Principal Repayment- The principal repayment on a home loan is also tax-deductible under Section 80C of the Income Tax Act, 1961. This deduction is available up to a maximum of Rs. 1.5 lakh per year. This deduction can help you save money on taxes and reduce your taxable income.
  • Tax Exemption on Home Loans for First- Time Homebuyers- If you’re a first-time homebuyer, you can claim an additional deduction of up to Rs. 50,000 on the interest paid on your home loan under Section 80EEA of the Income Tax Act, 1961. To be eligible for this deduction, the loan must be sanctioned between 1st April 2019 and 31st March 2023, and the stamp duty value of the property must not exceed Rs. 45 lakh.
  • Tax Exemption on Capital Gains- If you sell your property after holding it for more than two years, you can claim tax exemption on the capital gains earned from the sale of the property under Section 54 of the Income Tax Act, 1961. This exemption is available if you use the sale proceeds to purchase another residential property within two years of the sale or construct a residential property within three years of the sale.

The tax benefits of a home loan can significantly reduce your taxable income and help you save money on taxes. To calculate your income tax benefit on home loans with the help of an income tax calculator, you need to gather all your income details, calculate your gross total income, deduct the allowable deductions, calculate your tax liability, and file your income tax return.

Conclusion

A home loan offers many tax benefits, making it an attractive option for people looking to buy their own homes. The home loan tax benefit is a tax deduction that is available to individuals who have taken a loan to buy or construct a house. This deduction can be claimed for the interest paid on the loan and the principal repayment.

 

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