There is no denying the fact that buying a home is one of the most life-altering decisions of your life. Going for a home loan will not only help you purchase your new abode but will also let you get additional benefits such as tax rebate if you know how to save tax against it. Besides this, you will also get an option to reduce your taxable income when you take a home loan.
A property can be anything, from a home, office, to a shop. The Income Tax Act doesn’t differentiate between a residential or commercial property. All types of properties are taxed under ‘Income from House Property’. Properties used for the purpose of profession or business or even used for freelancing work are taxed under the head ‘Income from Business and profession’. Expenses on the maintenance or repair of these buildings are termed as business expenditure.
Below enlisted are few of the ways that will help you understand how to save tax on your property:
How to Save tax on Home Loan Interest Under Section 24?
Section 24 allows the homeowners to claim a deduction of up to Rs. 2 lakhs on the interest of their home loan, if they are residing in the same house or property. The same scenario is applicable to a vacant house. You can also get your entire interest exempted from income tax if you have got your home rented out.
However, the exemption on your interest will be limited to Rs.30, 000 if any one of the following conditions is not fulfilled:
The home loan is taken on or after April 1st, 1999
The construction or the buying process of the property is not completed within 5 years from the end of the Financial Year in which the loan was taken.
Here, it’s important to understand that the time frame of 5 years is calculated from the end of the FY in which the loan was granted. For instance, if you have taken the loan on 30th April 2016, the property construction should be completed by 31st March 2022. Also, exemption from tax on interest can only be claimed at the beginning of the financial year in which the property construction is completed.
How to save tax on Principal Repayment under Section 80C?
Under this section, you are allowed to claim up to Rs.1.5 lakh on the principal amount of your home loan. Following are the conditions to claim tax deduction under Section 80C:
The home loan taken by you should be used for buying or construction of a new property.
You can’t sell the property within next 5 years from the year you have taken the possession. In case, you do so, it will reverse the tax benefits and the tax deduction will be added back to your income again in the year you will sell your property.
Expenses related to Stamp duty and registration charges
Expenses related to Stamp duty and registration charges are also allowed to be claimed for a deduction under Section 80C. The maximum deduction allowed for such expenses is of up to Rs 1.5 lakhs. However, make sure to claim these expenses in the same year you pay for them.
How to save tax in India Under Section 80EE?
Section 80EE is an additional tax benefit for the 1s time homebuyers. Under this section, you can claim an additional Rs. 50,000 against your interest payment, besides the benefits you have claimed under section 24 & 80C. Please note that these benefits are not available for a property that is still under construction.
How to Save Tax in India on Home Loans In Case Of Joint Owners?
If you want to know how to save tax in India jointly, both of the co-owners should be co-borrower of the loan amount. In that case, both of the applicants can claim tax deductions for up to full amount.
Here, it’s important to realise that the claim amount is dependent on the ownership share of both the applicants’ regards to their property. It means that, if you have 60% of the property ownership and your spouse has 40% of the ownership, you will get property tax benefits calculated on your ownership share.
It’s important to understand that even if you’ve taken the joint loan, until and unless you are not an owner in the property, you won’t be able to claim the tax benefits. For example, there have been some cases where the owner of a property is a parent while the loan on the property is taken by the parent as well as her/his child. In such cases, the child who is not a co-owner of the property won’t be able to claim the tax benefits on the property loan.
Going ahead, each of the co-owner will be able to claim a tax exemption of up to Rs. 1.5 lakhs for the repayment of the principal amount. Therefore, it will help your family to gain a larger tax benefit on your property loan interest. This happens due to the reason that when a property is jointly owned and your interest outgo is more than Rs 2 lakhs a year.
Again, it should be noted that these tax benefits of both the principal repayment and deduction on home loan interest under section 80C can only be claimed once the construction of the property is complete.
Final Thoughts:
Getting a home loan and getting to know how to save taxes against it motivates many individuals to buy a property on home loan, who are otherwise not in a financial condition to buy a home.
Therefore, take your time and do a thorough research on how to save tax in India against properly loans to make the most of the tax benefits and give your savings a boost.