Greetings, homeowners and aspiring dreamers! Are you prepared to explore the fascinating world of hidden tax deductions in your mortgage? Tax Deductions under a Home Loan refer to the permissible costs or sections of costs associated with the loan that can be deducted from your taxable income, thus lowering your overall tax obligation.
In this blog, we will take you on a quick yet educational adventure as we examine the amazing tax benefits that come with your Home Loan. Let's dive in!
What is a Home Loan?
A Home Loan, usually referred to as a Mortgage, is a financial service offered by banks or other financial organisations to assist people in buying or refinancing residential property. The Loan Principal, which is the amount borrowed, is agreed upon to be repaid over a predetermined time period along with interest fees.
Further, Home Loan interest rates might differ from bank to bank depending on a number of criteria. The interest rates that various banks may provide might vary depending on the state of the market, the borrower's creditworthiness, and the terms of the loan. Thus, for instance, the SBI Home Loan interest rate may be different from the Home Loan interest rate of HDFC Bank.
Additionally, Home Loans are secured by the real estate itself, which gives the lender the right to foreclose on the property if the borrower is unable to make the needed payments. Thus, to make sure a Home Loan fits within your budget and long-term financial objectives, it's crucial to carefully analyse all of its components, including the down payment, monthly mortgage payments, closing expenses, and any other fees.
Tax Benefits & Deductions on Home Loan
Home Loan borrowers in India are eligible for a number of income tax benefits. Here is an extensive list of income tax advantages for House Loans in India:
1. Deduction on Home Loan Interest (Section 24(b))
Borrowers in India may deduct interest paid on House Loans under Section 24(b) of the Income Tax Act. According to this act, the maximum deduction for a self-occupied property is Rs. 2 lakhs each fiscal year. There is no limit on the amount of interest that may be deducted in this situation, and only the actual amount of interest that was paid can be claimed.
2. Deduction on Principal Repayment (Section 80C)
Borrowers may deduct the principle repayment portion of their House Loan under Section 80C of the Indian Income Tax Act. This section's annual maximum deduction—which covers other qualified investments and expenses—is up to Rs. 1.5 lakh. Additionally, it is crucial to remember that in order to qualify for this deduction, the Home Loan must be used to buy or build residential property, and the property must not be sold within five years of the date of possession.
3. Additional Deduction for First-time Homebuyers (Section 80EEA)
First-time homebuyers in India are eligible for an extra deduction on the interest paid on a House Loan under Section 80EEA of the Income Tax Act. It is crucial to keep in mind that this deduction is restricted by the total maximum of Rs. 2 lakhs set forth in Section 24(b) for House Loan interest deduction. Further, Section 80EEA allows for a maximum deduction of up to Rs. 50,000 every fiscal year.
The following requirements must be satisfied in order to qualify for this deduction:
- The loan approval must be between 1st April 2019 and 31st March 2023.
- The stamp duty on the property cannot be more than Rs. 45 lakhs.
- On the day the loan is accepted, the applicant cannot be the owner of any other
residential property.
4. Deduction for Affordable Housing (Section 80EEA)
Homebuyers in India can take advantage of another deduction on the interest paid on a House Loan under Section 80EEA of the Income Tax Act when they purchase affordable housing homes. This deduction is in addition to the current one for Home Loan interest provided by Section 24(b). Under Section 80EEA, there is a maximum deduction of 1.5 lakh rupees each fiscal year.
The following requirements must be satisfied in order to qualify for the affordable housing deduction:
- The loan approval must be between 1st April 2019 and 31st March 2024.
- The stamp duty on the property cannot be more than Rs. 45 lakhs.
- On the day the loan is accepted, the applicant cannot be the owner of any other residential property.
5. Joint Home Loan Deductions
In the event of a combined House Loan, when the loan is taken jointly by several co- applicants, each co-applicant is eligible to deduct interest and principal repayment expenses according to their individual contributions to the loan. The co-applicants might thus receive different tax benefits on their parts of the loan. Hence, according to the co-applicants' share of ownership or participation specified in the loan agreement, the total deduction for interest and principal payments is divided among them.
6. Pre-Construction Interest Deduction
Borrowers of House Loans for properties that are still under construction in India are eligible to deduct interest paid during this time under Section 24(b) of the Income Tax Act. The interval between applying for a loan and the end of construction is known as the Pre- Construction Phase. The interest that was paid during this time can be reclaimed in five equal payments beginning with the year that the building was finished. Further, there is a Rs. 2 lakhs cap on the maximum deduction you may make for pre-construction financing.
It is also significant to note that this deduction may only be requested after the construction is finished and the possession of the property is secured.
7. Deduction for Home Loan Processing Fees and Charges
Borrowers in India may deduct Home Loan processing fees and costs under Section 24(b) of the Income Tax Act. These costs and expenses can be deducted from the amount of interest paid on a mortgage as they were expended during the processing and approval of the loan.
8. Deduction on Stamp Duty and Registration Charges
Homebuyers may deduct up to a maximum of Rs. 1.5 lakhs from the amount paid for stamp duty and registration fees under Section 80C.
Conclusion
In conclusion, Home Loans offer more than just the opportunity to own a home. They also come with potential tax benefits in the form of deductions. By understanding and utilising these tax deductions, homeowners can reduce their tax liability and potentially save a significant amount of money. Lastly, it's important to note that tax laws and regulations can change over time, so it's essential to consult with a tax professional or accountant to understand and maximise your eligible deductions fully.
