Tax Saving on Home Loan - Under Section 80C and Section 24

Bangalore : Buying a home is considered as an investment and act of gratifying a dream of living in own house. From a financial perspective, the home loan is considered as a good debt. The repayment of the loan along with the interest charged doesn’t affect your monthly and annual finances because you get tax exemption on loan payments. It is an added inducement for paying EMI rather than rent on a home especially for salaried employee who is living in a high rent metropolitan city.

The Indian Government allows tax benefits for individuals who are repaying loans. These benefits vary according to the loan taken. Tax benefits from home loans can be inherently divided into two subsections. One is repayment of the principal loan amount and other is payment of the interest on the home loan.

Tax benefits on home loans are managed by diverse sections of Income Tax Act, 1961. The repayment of principal loan is allowed for a tax deduction under Section 80C where the interest paid on homes under Section24.

Tax benefits on Principal repayment Amount: Tax benefit on Principal amount allows maximum deduction of Rs 1,50,000 and this deduction includes all other tax saving investments such as funds invested in PPF, equity linked savings scheme, Insurance premium, School fees, NSC, Tax saving FDs and other financial instruments. Moreover, these deductions are applicable only once the construction of the house is complete and not for the time period during which the house was under construction.

Caution: All the deductions claimed under 80C are reversible if the property is sold within five years from the financial year in which property is taken. Deductions claimed during 5 years will be treated as income for the financial year in which you sold the property and you need to pay tax on the same.

The exemption under Section 80Cis allowed only under following conditions such as:

• This deduction is only for residential property not for commercial property.
• This deduction only available for self occupied property not for let out property.
• The value of property does not exceed Rs 40,00,000.
• The loan amount does not exceed Rs 25,00,000.
• The loan is taken for your first home i.e., you as a tax payer do not already own a residential property on that date.
• It is available only for purchase or under construction property and not for renovations and repairs.

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