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

Tax benefits on interest paid:

The sum of the amount paid by you towards interest on the principal loan amount is allowed for a tax deduction under Section 24. This is available for construction, repair, purchase and reconstruction of both residential and commercial property. Furthermore, this is allowed for both self occupied and let out property.

For construction or purchase of a new home, the maximum limit for tax deduction under the section is limited to Rs 2,00,000 and in case of let out property, there is no maximum limit the entire amount can be taken for tax benefit. If the property construction was not completed within 3 years from the end of the financial year in which the loan was issued and if a property is not self occupied, then there is no upper limit on this deduction.

The total amount of interest paid on home loan prior to possession of the house as it can be claimed as pre construction interest in 5 equal installments for the next five years precisely; from financial year in which possession is received.

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.

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