A home loan can save you Rs 5,000,000 in taxes per year; here’s how

A home loan can save you Rs 5,000,000 in taxes per year; here’s how

A home loan contracted for the purpose of renovating or buying a new home is accompanied by various tax advantages. In fact, the total tax benefits on repayment of principal and interest under various sections of the Income Tax Act, 1961 amounts to Rs 5 lakh per annum.

This type of borrowing could be beneficial for salaried individuals, as it helps create a permanent, high-value asset with the added benefit of effective tax planning.

Tax benefit on principal repayment: Section 80C.

Under Section 80C of the Income Tax Act 1961, taxpayers can claim a deduction of up to Rs 1.5 lakh per annum simply by repaying the principal amount of the home loan. This remains within the aggregate limit of Section 80C, which also allows a deduction on investments made in tax-saving instruments such as ELSS, PPF, life insurance and NPS.

The deduction is valid for the purchase of a new residential apartment or for the renovation of the existing property. In addition, any expenses incurred in respect of stamp duty, registration fees or any other charges directly related to the transfer of the property are allowed as a deduction within the aggregate limit of Rs 1.5 lakh of l 80C. This deduction is only allowed in the year of the actual expenditure.

However, the deduction will be canceled if the property on which the deduction is claimed is sold within a blocking period of 5 years from the date of purchase.

Tax advantage on repayment of interest: article 24 (b)

Under Section 24(b) of the Income Tax Act, the taxpayer can claim a deduction of Rs 2 lakh on the interest paid. In the case of construction in progress, the deduction is only available once the construction or renovation of the property has been completed.

Article 80EEE

Beyond Section 24, another deduction of Rs 1.5 lakh is granted against the interest payable on the loan under Section 80EEA. This deduction is subject to the condition that the loan has been sanctioned by a financial institution such as banks or housing finance companies between April 2019 and March 2022. The stamp duty value of the property must not exceed Rs 45 lakh for the deduction of Section 80EE to be applicable. The deduction is intended to target first-time home buyers and is only applicable if the borrower does not own any other property at the time of availing the loan.

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