Tax Benefits on Home Loan

Owning a home is an important thing in life. It is a long cherished dream for many. These days, there is a great increase in the property prices in India. And so, buying a house in a single payment is difficult for many people. Therefore, many people go for housing loan and it makes the process of buying a home easier.

Many nationalized and private banks offer housing loan. There are also some housing finance companies in India which offer Housing Loan. One of the most attractive benefits of taking a home loan is that they help you save tax, while you invest in a property. Taking a home loan makes you eligible for tax rebates under Section 80(c) and Section 24(b) of the Income tax regulations.

Section 24(b) is with respect to the “Interest Paid” on the Home Loan and Section 80(c) is with respect to the “Principal Repayment” of the Home Loan. These tax deductions can be availed at 1 lakh for the principal repaid and 1.5 lakhs for the interest repaid in that particular financial year, for which you are filing your returns.

Joint Loan Benefits:

Another advantage of these tax rebates is that if you are taking a joint home loan with your parent, child or spouse, these tax rebates can be availed simultaneously by all of you involved in the joint loan.The tax benefits are applied according to the proportion of the loan taken by everyone involved in the joint loan. For e.g. if the ratio of ownership is 3:2, then the loan amount of 50 Lakhs will be split as 30 Lakhs and 20 Lakhs respectively. The interest and the principal applicable to the respective amounts will be taken into account for each individual taking the loan.

So taking a joint home loan has the benefit of both increasing your loan eligibility and maximizing your tax rebate. When you apply for a joint home loan, all co-owners of the property should also be co-applicants but the reverse need not be true.

If you are buying a house under construction, then you can claim tax benefits only after the construction of the house is completed. Also if you are going to let it out for rent, then you have to pay tax for rental income received as well. Acquiring a home loan is a definite benefit for your tax planning. But if you are capable of buying your home with your own funds, then you should not get a home loan just to claim your tax benefits. It is always better to invest in an asset with your own funds. You can pool in the money you would end up paying as EMI into a fixed deposit so that you get a good return.