Paying off a home loan can be financially taxing. Hence the government has introduced several provisions under the Income Tax Act to ease the burden of taxpayers with home loans. If you are reeling under the burden of paying a home loan, you must understand all the possible deductions, which will help you save up on taxes significantly. To help you make the most of the home loan related tax benefits, listed below are all the deductions you can claim.
Deduction on the interest amount
Every home loan entails a certain amount of interest which is charged in addition to the principal amount. If you are paying the monthly EMI, the interest component of the EMI can be claimed as a deduction. However, this deduction can only be claimed if the borrower is also the owner of the home. Additionally, the interest deduction can be claimed, starting from the year in which the building construction was completed.
Deduction of the principal amount
A major component of your home loan EMI goes towards the payment of the principal amount. The principal component of the home loan can be claimed as a deduction under the section 80C of the Income Tax Act. At the end of the financial year, you can add up the principal amount for a year and claim it as a deduction. However, the deduction on the principal amount is subject to a limit of Rs. 1.5 lakh.
Deduction on stamp duty and registration charges
Taking up a home loan involves miscellaneous expenses such as stamp duty and registration charges. These charges can also be claimed as a deduction Section 80C. However, these charges have to be included in the year they were paid.
Deduction on pre-construction interest
Although deduction on interest can only be claimed, starting the financial year in which the construction is completed, pre-construction interest can be claimed from the same year. The entire pre-construction interest can be claimed in five equal installments. However, the total deduction should not exceed Rs. 2 lakhs if the house is being used as your personal residence.
Deduction applicable to first time home buyers
The Section 80EE allows an additional deduction for first time home buyers up to maximum of Rs 50,000. However, to claim this deduction, the home loan amount should not exceed 35 Lakhs and the value of the property should not exceed 50 Lakhs. Additionally, only the loans sanctioned between April 1, 2013, to March 31, 2014, will be eligible for this deduction.
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