There have been regular reforms to the real estate sector by the government and the steady cuts to the home loans make the current times exciting for home buyers. And the availability of affordable homes is like the icing on the cake. The feeling of having your house coupled with the above are good enough reasons for you to consider buying a home with the help of a home loan. But before you finalize your decision, here are the tax-related goodies that you should benefit from.
- Deductions Under 80C
This is probably one of the most known facts when it comes to a home loan. The government allows you to deduct certain payments that you make towards your home loan including the repayment of principal amount. You can claim up to Rs.1.5 lakhs per annum against Section 80C towards principal repayment and up to Rs.2 lakhs per annum towards interest repayment. Since the deductions are applicable to the interest amount that is accrued over a year, even if you miss out on one or more EMIs, you can still claim the deductions. But when it comes to principal repayments, it is only on the actuals.
- Processing Fee
A loan comes along with a lot of other components and charges. But not many of us are aware that a few of these charges or fees are eligible for tax deductions. As per the Income Tax Act charges levied on customers for a loan are eligible for deductions as they are considered as interests. Therefore, charges such as processing fee can be claimed under Section 24 or income from house property. However, any charges that you pay as a penalty will not be covered under this section.
- Friendly Loans
Section 24 also comes in handy if you have borrowed any loan from friends and family. If you have borrowed any money from your friends or family for the purpose of construction of house or purchase of a property, you can claim the interest amount paid on loan under Section 24. The loan does not have to be a bank and the purpose can be repairs or reconstruction of house or property as well. One needs to be careful with this as you can claim only the interest amount paid. Also, you lose out on other tax benefits like the principal amount claims if you do not take loans from a bank.
Some of us start the home loan installments even when the house or property is under construction. Though one cannot claim the principal repayment, they can do so with the interest paid. The interest paid can be accrued and claimed post the completion of construction. This acts as a deferred deduction.
- Principal Repayment is reversible
Individuals who have opted for a home loan and sell the property within 5 years of doing so, reverse all the tax benefits. If you have claimed any repayments towards loan principal under Section 80C, it will be reversed and will be added to your taxable income should you sell the house within 5 years. However, this is applicable only to deductions under section 80C.
- Must be a co-owner
Borrowers who wish to claim tax breaks on home loans need to be a co-owner of the house or property in question. If your parents own a property and you are paying EMIs for the same, you cannot claim the amounts for tax deductions unless you are a co-owner of the property. Also, the bank records should reflect your name as a borrower or co-borrower for the property.
The above points should help you out if you are starting out with a home loan. Even if you already have started you can still benefit from it and make correct decisions.