Home loan tax benefit is an exciting aspect of home financing. Cracking this code can actually help you save lakhs of rupees as tax rebates. However, understanding them is a challenging thing to do. As a result, you need to read this guide in order to know all there is to know about home loan tax benefits and rebates.
Types Of Property Tax You Need To Know About
Property tax is one of the most lucrative sources of government earnings. Every year, trillions of rupees are collected through property tax, making it a seminal financial vertical.
Earlier, these taxes were only levied when a new property was being constructed. The state and other civic bodies usually levy it. The clause was added in 1978 with the 44th Amendment.
Here are some of the most common and famous property taxes that the government levies from its citizens:
- Personal Property: This form of property includes anything tangible and movable, such as cars, buses, trucks, etc.
- Land: This includes tangible immovable properties like land, houses, plots, etc.
- Improvement on land: This includes taxes on home construction. This tax is generally levied on the loan amount and can be avoided. Keep reading this article on home loan tax benefits to know more.
- Intangible property: Intangible assets like copyrights, patents, etc., fall under this bracket.
What Is A Home Loan Tax Benefit?
One of the most significant aspects of buying a home is its financial aspect. As a homeowner, you need to have a clear idea of the extra expenses that you need to pay to legitimize your beloved abode. One such cost is the home loan tax.
Home loans are some of the most rampant and common forms of lifestyle loans that people avail in this country. Trillions of rupees get rolled around as home loans every year. As a result, the government has issued a mandate where it would take some amount as tax.
However, there are ways to bypass this taxable liability smartly and legally. In fact, home loan benefits can save you a hefty amount. However, the percentage is decided by several factors.
A state’s governmental regime is also important for tax rebate percentages. The bracket that the applicant falls under, etc. Hence, it is an important aspect that needs to be discussed.
Income Tax Benefits
The journey of tax rebates on home loans started back in 1961. Indian government built provisions that allowed borrowers some exemptions on home loans. These include:
- As per Section 80C of ITA, principal repayment of home loans can help you avail yourself of tax rebates up to Rs. 1.5 lakhs.
- As per section 24, you can avail of tax rebates upto Rs. 2 Lakhs on interest repayment of your home loan.
- Finally, you can get tax rebates of up to Rs. 50000 if you are a new homeowner. Section 80EE of the Indian government mandated this rebate.
One thing you need to remember is that you can only take advantage of tax rebated or home loan tax benefits if you fall under a specific category. If you earn more than 2.5 lakhs per annum, then you are not liable for any tax rebates. However, this clause was only applicable in older regimes. Hence, you can expect some changes.
Conditions For Home Loan Tax Benefit
Tax rebates are a huge deal. As a homeowner, you need to look for these exemptions to bring your overall cost down considerably. Users claim that they managed to avail themselves of as much as Rs. 1.5 lakhs on their overall deal.
However, taking advantage of tax rebates is a challenging task. There are several factors that determine the eligibility and other aspects. Here is a detailed rundown of some of the most basic and essential elements that determine whether you will be able to take the rebate or not.
Let us dive right in without further ado. Here we go!
Section 80C
Section 80C allows people to avail of tax rebate benefits on the principal amount of the home loan. This is one of the most significant factors that drives the carriage of home loan tax benefits.
Individuals can claim a tax rebate of up to 1.5 lakhs after they complete the construction of their house. However, this tax rebate comes with its pitfalls. An individual has to stay in the house for at least five years after issuing the rebate. Hence, you need to retain your property for more than five years in order to claim this rebate.
Otherwise, the deductible tax will be added back to your income tax account as a payable amount.
Section 24
Section 24 of the Income Tax Act allows individuals to avail tax rebates on interest. As per the mandate, an individual can secure tax rebates of upto two lakhs. This is another pillar of home loan tax benefit.
However, this benefit comes with a necessary clause. A person can only avail of this rebate if they complete construction within five years of taking the loan. Otherwise, you can only claim around Rs. 30,000 as a tax rebate.
Subsequently, if the property is not self-owned, the individual can receive benefits regardless of completion time.
Section 80EE
Section 80EE is a massive blessing for first-time homeowners. As per the clause, every new homeowner can get tax rebates of upto Rs. 50,000 on the interest amount. This rebate is calculated on interest. Therefore, a payee can claim this rebate while filing for IT returns.
This clause comes with its own nuances. Firstly, the loan amount needs to be less than rs. 35 lakhs. Next, the overall property value must not exceed Rs. 50 Lakhs. However, this loan rebate is applicable to first-time homeowners who are building or buying their first house.
As a result, you need to present the correct documents in order to let the officials verify this fact.
How To Avail Tax Benefits On Under-Construction Properties?
Tax rebates function differently with each variant of property tax. Here are some of the points that determine how home loan tax benefits work when it comes to under-construction properties
- The section 80C allows individuals to deduct tax amounts paid for the registration process and stamp duty.
- Section 80C allows individuals to deduce upto Rs. 1.50 lakh on the principal repayment of the house loan. You can only avail of rebates after you secure the position of the plot.
- Individuals who started paying regular EMI before the property construction cannot claim a rebate. They can only claim once the property is finished and the position has been secured.
- Individuals can only claim tax rebates if they meet the tax deadlines. Otherwise, their home loan tax benefits would be forfeited.
- Home loan tax benefits can be claimed while filing the income tax return.
Which Expenses Are Not Deduced
Section 80C is an excellent choice for people who want to get some tax rebates on their home loans. However, there are some factors that affect the payout. As a result, you need to have a clear idea in order to settle your claim smartly.
Section 80C does not cover admission fees, initial deposit, and share costs that a person might pay to become a shareholder of a construction project. Therefore, you need to pay these small expenses out of your pocket.
Finally, changes that are made after the issuance of completion certificates would also come out of your pocket. As per the section, the government is not liable to rebate this amount in any way whatsoever.
How Does Joint Home Loan Reduce The Overall Tax Liabilities?
Sections 80C and 24 enable each co-owner to avail of tax rebates of up to 2 lakhs on interest payment and 1.5 lakhs on principal repayment. As a result, each co-owner can avail up to 3.5 lakhs of home loan tax benefits.
However, co-owners need to share the same residence and cannot resell their property within five years of securing tax rebates. Otherwise, the whole amount becomes repayable as Income tax.
This is a contingency clause set forth by the government to keep the general population form exploiting these clauses according to their will. However, this clause is all set to change in upcoming years. Therefore, you can expect to be some changes in the structure of home loan and home loan tax benefits.
Guide To Home Loan Tax Benefit Calculator
Understanding the nuances of home loan tax is a challenging thing to do. Even the most veteran homeowners and tax experts might need clarification. As a result, homeowners should check out online home loan tax calculators to help ease the journey.
In simple terms, a home loan tax benefit calculator is a tool that can help you assess your exact tax rebates. These calculators tend to offer instantaneous results without hassle.
Let us dive right in and see what powers these calculators have and if they are viable or not. Then again, a calculator is merely a device. Therefore, you should consult a tax expert in order to get the right kind of idea about home loan tax benefits.
Factors You Need to Know
Home loan tax benefit calculators are great for calculating rebates. However, it can only function if they take into consideration some key points. Here is a small analysis of all the key points that home loan benefit calculators take into consideration.
- Year of assessment: The year for which you are trying to assess the overall income tax dues.
- Categorization of the applicants: The assessee is categorized into one of the two categories according to their age. People above 60 enjoy different benefits from the rest of the population.
- Annual Earning: People who earn more than rs. 2.5 lakhs per annum cannot avail of complete tax rebates. However, people under this bracket can get a complete tax rebate while constructing their residence. Then again, there are nuances and challenges that make matters complex and difficult to exploit.
- Total interest paid: An assessee also needs to declare the total interest paid by them in a fiscal year.
- Total principal amount paid: The final field you need to fill out is the total amount of the loan you repaid during the assessment year. This is crucial information for getting a home loan tax benefit.
Benefits Of Using The Calculator
Home loan benefit calculators are excellent. They help make a complex home loan process streamlined and bearable. Here are some of the most significant benefits of using a home loan calculator.
Fast Calculations: Home loan benefit calculators help calculate complex equations in under a minute. This makes the whole process hassle-free. Otherwise, calculating home loan tax benefits is a herculean task that takes time and effort.
Accuracy: These calculators not only offer speed but also some very accurate results. Developers have understood the implications of a botched tax calculation. As a result, these calculators are exact and tend to provide accurate results about home loan tax rebates.
Easy-To-Use interface: Developers know what it means to do complex tax calculations at lightning speed. As a result, the developers of these applications have gone the mile and have tried keeping the user interface friendly and minimalist. This makes it user-friendly.
Accessible: The best part about online home loan benefit calculators is their accessibility. These calculators can be found online without any hassle. As a result, you can easily use their computing power to find your exact tax rebate percentage.
The Closing Thought
In summary, that is all there is to know about home loan tax benefits. However, tax laws are constantly changing. As a result, always verify with a tax expert before making any decision regarding taxes. This will eliminate the scope for confusion, so keep following our page for more such content. Thank you.
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