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Do you know the most common form of tax benefit is a tax deduction? The tax law that enables you to reduce your tax on meeting certain eligibility requirements is tax benefit. As a professional, you must be doing your tax planning every year. You must have made prudent investments when your income increased to reduce your tax burden. There are numerous tax-saving investments, and among them a home loan is a long-term purchase, which attracts tax deductions for the interest accrued on it.
You take a home loan to realize your dream of buying your own house, and also to save money on tax, which you pay at the end of the financial year. The government in India encourages its citizens to buy a home by offering home loan tax benefit. You become eligible for it if you avail a home loan to purchase or construct a house, and in the case of construction, it should be completed within 5 years.
With additional income tax benefits on home loans announced by the union minister of finance in the previous budgets, which are applicable for the financial year 2020-21, you can enjoy tax benefits under the old tax regime through exemptions and deductions. The home loan tax benefit is explained in detail hereunder.
There are two components on the EMI that you pay, and they are the principal amount and interest amount. For a self-occupied property, you can claim the amount you repaid on account of principal in the EMI as a deduction under section 80 C of the Income Tax Act 1961. In case you have a second home, where your parents are staying or it is empty, it will also be your self-occupied property.
You will be eligible for a tax deduction of up to 1.5 lakh on the principal amount you paid in the EMIs for both the houses, which are bought using home loans. If the second house is rented out, it is considered a let-out property, and you are still eligible for home loan tax benefit. You can also claim the registration and stamp duty charges incurred when buying your home.
The tax deduction on home loan also includes the interest paid on the loan. Under section 24 of the Income Tax Act, you are eligible for home loan tax benefit of up to 2 lakhs for the self-occupied home. In case you have a second house, the total tax deduction on home loan for two homes should not exceed 2 lakhs in a financial year.
If it is a let-out property, you do not have any maximum limit for claiming interest. However, the loss you can claim under the Income from House Property is limited to Rs 2 lakhs only. The remaining loss can be carried forward for 8 years for the adjustment against the Income from House Property.
You can avail this home loan tax benefit if you have taken the loan in the financial year 2016-17. Under section 80EE, you are eligible for additional deduction of Rs. 50,000 in addition to the deduction of 2 lakhs on the interest paid, provided you satisfy the following conditions.
You can claim an additional deduction of up to Rs 1.5 lakh on the interest paid on home loan. To gain the home loan tax benefit under section 80EEA, you should meet the following:
If you have a joint home loan account with IDFC First Bank, each borrower can claim home loan tax benefit on the taxable income. The borrowers should be joint owners of the property and can claim deductions up to 2 lakhs each on the interest and 1.5 lakh each on the principal amount paid on the home loan.
To claim income tax benefits on home loan, you should ensure that:
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