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How your tax burden is lowered with your home loan

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How your tax burden is lowered with your home loan

Do you have a home loan? You can actually reduce your overall tax burden by strategically tapping your home loan in many ways. There are quite a few tax incentives that are available with regard to interest that is paid on home loans as per the Income Tax Act. Properties are usually classified into the following categories-

  • Self-Occupied- Occupied by individual as a residence, properties which are not occupied by individual due to business/employment/profession
  • Let Out- Properties rented out to customers for part/whole of the taxation year for business/residential purposes
  • Deemed Let Out- When individuals have more than one property and these are not tapped for any purpose, then they can be taken as deemed let out which will be treated similarly as Let Out properties by way of taxation.

The deductions that are available are as follows-

  • Self-Occupied Properties- Tax benefits up to Rs. 2 lakh on annual interest repayment of home loan. The maximum deduction is limited to Rs. 30, 000 in case the home loan has been taken prior to the 1st of April, 1999 or if the construction period crosses 5 years from the end of the particular financial year in which the loan has been taken.
  • Let Out Properties- Total interest on properties which are let out can be claimed as deductions and maximum deduction can be Rs. 2 lakh for a tax year.
  • Deemed Let Out Properties- Same treatment as the above.

There are tax benefits as per Section 80C on the principal amount repaid and this can be a maximum of Rs. 1, 50, 000. However, if the property is transferred within 5 years from claiming the deduction, the deduction that is claimed in earlier years will be added back to the tax payer’s income in the year in which the transfer has been made. There are tax benefits on registration fees, stamp duty and other expenses under Section 80C up to a maximum of Rs. 1, 50, 000. The transfer restriction for claiming this deduction applies in this case as well. Section 80EE offers tax benefits on home loans taken for residential properties in case the loan was sanctioned between 1st April 2016 and 31st March 2017. Also, the loan amount should not exceed Rs. 35 lakhs and the house value should not cross Rs. 50 lakhs. The buyer should not have any other property in his/her name and can claim deductions up to Rs. 50, 000.

There are some other incentives available for tax payers. In case of house property which is owned jointly, all tax benefits will be accruing to each co-borrower for the home loan. Those who are planning to take a home loan for buying a home should do so as there are tangible tax benefits and these can be efficiently structured in order to lower the overall EMI burden as well.

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