Long-Term Tax Redemptions Benefits of a Home Loan
Getting a Home Loan does more than help you buy the property of your dreams. One of the biggest benefits of getting a Home Loan is that you are eligible for several tax rebates and deductions. This can help ease your tax burdens and also plan your finances well with the extra money that is available to you
Tax rules with respect to Home Loan exemption
The current rules for tax redemption on Home Loans are as follows:
- For any rented property, the owner can deduct up to Rs. 2 Lakhs per annum after the rent has been adjusted.
- Housing loans on self-occupied properties are eligible for deductions up to Rs.2 Lakhs on the interest that is paid towards the loan.
- If any property is sold within 3 years of being purchased, the amount earned is considered as capital gain and will be taxed as per the individual’s slab.
Tax benefits available on Home Loans
For all loans such as DBS Bank Home Loan, you have six types of tax benefits that you can avail:
- Interest paid on the housing loan: This is one of the primary benefits of Home Loan. If the property is completed within five years from the financial year that you availed the loan. There are two components in the EMI repayment. One is the principal repayment and the other is the interest. As per section 24 of the Income Tax Act, you can claim a deduction of up to Rs.2 Lakhs per annum on the interest that you pay on your housing loan.
- Preconstruction expenses on the payment of interest: When you apply for any Home Loan for a property that is still under construction, the EMI is still applicable. You can claim tax benefits of Home Loans on the interest that you paid in the financial year when the property was still not available to you.
- Principal repayment: You can get tax benefits on principal payments under section 80C of the Income Tax Act. The maximum deduction available to you in a financial is restricted to Rs.1.5 Lakhs. You are eligible for this tax deduction only if you do not sell the property within five years of acquiring possession. If the property is sold, any deductions that have been claimed will be added to the individual’s income and will be taxed as per the slab for that year.
- Benefits on stamp duty and registration fees: It is also possible to claim tax deductions towards any registration fees or stamp duty paid towards the property. As per Section 80C of the Income Tax Act, you can claim a maximum deduction of Rs.1.5 Lakhs against these fees. You must keep in mind that the tax deductions made on the registration fee and the stamp duty is only applicable in the financial year when the payments have actually been made.
- Tax benefits for first time buyers: Under section 80E of the Income Tax Act, you can get an additional deduction of Rs.50,000 if you are buying a home for the first time. It is mandatory that the value of the house should not exceed Rs. 50 Lakhs. In addition to this the DBS Bank Home Loanthat you have applied for must not exceed Rs.35 Lakhs. The maximum of cap on deduction of Rs.2 Lakhs towards interest and Rs.1.5 Lakhs towards the principal repayment is still applicable. The individual must not own any other property when the loan is sanctioned in order to avail this tax benefit.
- Tax benefits of joint Home Loans: There are possibilities that you have availed a joint loan along with an eligible family member. In these cases, the tax benefits pertaining to the Home Loan are available to both the co-borrowers provided that they are both co-owners of the property. The maximum limit of Rs.2 Lakhs towards interest repayment and 1.5 Lakhs towards principal repayment is still applicable. This is applicable to each individual who is a co-borrower.
If you are borrowing a Home Loan for the second time, it is still possible to get tax rebates. When you are availing a second housing loan, one property will be considered a self-occupied property while the second one is considered a let out property. You can claim rebates on both these properties.
Home Loan tax benefits on let out properties
The deductions and rules applicable are slightly different when you are talking about a let out property. The benefits of Home Loan against let out properties are:
- You can claim any deduction only on the repayment of the interest.
- There is no maximum cap on the amount that you can claim for deductions.
- All taxes paid to a local authority such as municipal taxes can be claimed as tax deductions in the financial year that you make the payments.
- You can get deductions upon 30% of the annual value of the property for any repair and maintenance.
How to claim tax benefits on Home Loans
- Calculate the tax benefits on the Home Loan: Use an online calculator to check the tax benefits you can avail. You will have to enter your loan amount, the tenure of the loan, the interest rate, the starting date of the loan, the gross annual income, the existing deduction.
- Submit your Home Loan Interest Rate certificate to your employer in order to adjust your TDS or tax deductible at source.
- If the TDS is not adjusted, then you will have to file all your returns on your own.
- For self-employed individuals, submitting these documents is not necessary. You will have to keep these documents handy in case any queries are raised in the future about the deductions that you have claimed.
So, if you are looking for options to financing your home, the best option is to avail a Home Loan instead of investing your savings. This not only helps you keep some emergency funds handy but also eases tax payments considerably.