Home Loan: 5 Tax Benefits You Must Know

The first-time home buyers in India can avail a plenty of tax benefits. These deductions not only help individuals manage finances in a better manner but also reduce their tax outgo. Read on to know about all the tax deductions that you must know especially if you’ve recently purchased a home for the first time.

1. Deductions on Interest:- If you took a home loan to buy a house and are currently paying the loan EMIs, the interest paid towards the loan can be claimed or demanded as a deduction. To demand the deduction on interest, you must both be the owner and a co-borrower in the loan to get tax benefits. The tax deduction on interest can be claimed at the beginning of the year when the construction of the property is completed. So let’s suppose, if your house is completed on 30th Sep 2014, you can claim a deduction for the entire 12 months in FY 2014-15. So every year a maximum deduction of Rs 2lacs can be claimed for the property you are using as homeowner’s residence. However, if you are putting that house for rent, the interest paid the entire year can be claimed as a deduction.

2. Deduction on principal repayment:- Section 80C of the Income Tax Act states that the part of EMI that goes towards the principal repayment can be claimed as a deduction. You can recapitulate the yearly expenditure that you’ve paid towards principal and claim it. Under this subtraction, a deduction of maximum Rs. 1.5 lakh can be claimed under Section 80C.

3. Deduction on home loan registration charges and stamp duty:- In addition to the deductions on interest rates and principal repayment, you can also claim deductions on stamp duty and home loan registration charges associated with your home loan u/s 80 C. But these deductions can only be made in a year in which these expenses are made.

4. Pre-construction interest deduction:- Along with the deduction on interest paid towards the loan, you can also claim deductions for pre-construction interest from the same year. For this, you can calculate the interest paid on property pre-construction and claim it is 5 equal repayments. Here, the overall deduction will not be more than 2 lacs if the property is being used as homeowner’s residence.

5. Deduction u/s 80EE:- This section has been specifically included to benefit people who are buying home for the first time of worth Rs 40lacs or less and took the loan of Rs 25lacs or less. Homeowners can only be entitled to this tax deduction when the loan is approved from 1st April 2013 to 30th March 2014. A deduction of maximum Rs 1 Lakh can be claimed under this act. Homebuyers can claim this deduction in FY 2013-14 and 2014-15. Note that the total deduction acceptable u/s 80EE of the Income Tax Act will not go beyond 1 lakh. This section is not applicable to the current financial year 2015-16.

The list of documents that you need to provide while claiming these deductions include:-

1. A proof of ownership (as owners can only avail these deductions)
2. As you can claim these deductions for a constructed house only, you are required to provide a construction date while claiming these deductions.
3. In addition to this, you must also provide interest and principal details related to your loan

If you have been paying your home loan EMIs regularly, now is the time to claim these deductions under the Income Tax Act. It provides a sense of relief to the taxpayers and helps them manage their finances efficiently. To calculate your home loan EMI details & interest paid or the principal repayment against the loan, home loan EMI calculator can be used. With the help of amortization table, it highlights each and every detail of a home loan with mere simple few clicks of a mouse.