In the Union Budget 2021, the government announced a year-long extension for the Rs.1.5 lakh additional tax deduction on the interest paid on home loans. Consequently, a home loan tax rebate amounting to Rs.3.5 lakh is now available to potential borrowers for an extra one year till 31st of March 2022.
An existing home loan borrower or someone who has acquired a home loan recently can avail some specific tax benefits on the interest or principal amount to be repaid. For the current financial year, tax exemptions like HRA and other deductions under Sections 80C, 80D, etc., can be claimed by an individual.
Below mentioned are all the possible areas of tax saving on home loan available for a potential home loan borrower.
Deduction on the paid interest of a home loan
Under Section 24, for self-occupied properties, a maximum amount of up to Rs.2 lakh can be availed as a deduction on the paid housing loan interest in a given financial year. An amount exceeding Rs.2 lakh is neither carried forward nor adjusted in the form of any other income category.
Additional deduction on the purchase of an affordable property
An additional deduction under Section 80EEA amounting to a maximum of Rs.1.5 lakh in a financial year can be claimed if an individual purchases an affordable housing property. This deduction is applicable beyond the limit of Rs.2 lakh. Therefore, a maximum amount of up to Rs.3.5 lakh can be claimed as a deduction by a potential taxpayer.
Deduction on principal repayment of home loan
Home loan repayments comprise settling the amount availed as principal, alongside the interest levied. A deduction of up to Rs.1.5 lakh can be claimed on the principal repayment amount of the EMI under Section 80C of the Income Tax Act of 1961. This deduction is applicable for self-occupied properties.
Under the circumstances where an individual owns two houses, both of them would be considered self-occupied properties. If the individual has availed a home loan on both the properties, then the home loan tax rebate can be claimed on the repaid principal of both loans amounting to a maximum of Rs.1.5 lakh. If any one of the two properties mentioned above has been put on rent, then the property becomes ineligible for tax benefits. Deductions under this particular section are also applicable on registration and stamp duty charges while purchasing a house.
Home loan borrowers should always be responsible for their repayments, regardless of the home loan tax benefits that they enjoy. This would ensure that they maintain a good credit score which would in turn help determine home loan EMIs in the future. In addition, it would also make them eligible for several attractive offers brought by lenders.
For instance, financial institutions provide pre-approved offers, which help in simplifying and accelerating the loan approval process. These offers are provided on various financial products like home loans, loan against property and more. You can check your pre-approved offer by providing a few details such as name and contact number.
Further, just like using a home loan EMI calculator, potential borrowers can make use of the home loan tax benefit calculator offered by the reputed NBFCs, to gauge the amount that they save by way of tax benefits.
Thus, it can be concluded that all the deductions taken together would help an individual acquire a home loan tax rebate of around Rs.5 lakh if all the necessary criteria are met. Therefore, a potential home loan seeker must take note of the tax benefits before availing the loan to maximise benefits.