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How you can harness your home loans to help you save money

No matter how much your income is, if you want to save your money, then a proper financial planning is a must. If you are a salaried person, you must have some plans to save your income tax every year.

Sanchita Mondal
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Home loan can save your moneyPhotoPhoto:

Home loan can save your money

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Buying or building a home is one such dream that everyone cherishes. At one point in life, we all want to have our own property where we can live peacefully with family. But with skyrocketing property prices, most people take advantage of home loan options that usually forms 70-80% of the property’s value. And, that is probably the biggest loan that a person will ever take; thankfully, the related income tax breaks are also significant. 

No matter how much your income is, if you want to save your money, then a proper financial planning is a must. If you are a salaried person, you must have some plans to save your income tax every year. There are so many tax saving investments that can help you reduce the tax burden on you, and among them, availing of a home loan can be the best income tax saving option for you. 

Taking a home loan will not only save your tax but will also help you fulfill your dream of buying or building your own house. Meanwhile, to encourage its citizens, the central government is offering home loan tax benefits by which one can easily purchase a home and save money on tax. 

In 2022 budge, the Centre brought no major changes in the deductions under home loans, but the allocation of Rs 48,000 crore fund to the Pradhan Mantri Awas Yojana (PMAY) was only major news. 

Let's take a look at how you can make the most of these benefits:

Tax Benefits on Home Loan (FY 2022-23) under the provisions of the Income Tax Act, 1961:

Section Under Income Tax Act, 1961 Maximum Deduction 
Section 80C   Rs.1.5 lakh/year
Section 24     Rs.2 lakh/ year
Section 80EE Rs.50,000 / Year

Income Tax benefits on a home loan:

As per the instructions by central government, you can enjoy tax benefits on home loans under the provisions of the Income Tax Act, 1961. Besides, you must be aware that there are two components on the EMI payments, one is principal repayment and the other one is interest payment. 

Deductions of Principal repayment under section 80C:

Under Section 80C, you can claim up to Rs.1.5 lakh from taxable income on principal repayment for both self-occupied and let-out properties every year.

Under this section, you also can claim a deduction for stamp duty and registration charges of your house. But the overall limit will be Rs 1.5 lakh.  And if you want to avail of the benefits under this section, you cannot sell the property or house within five years of possession. 

Interest deductions under Section 24:

For buying or constructing a new house which must be completed within five years from the financial year end in which the loan was availed. 

Under Section 24, you are eligible for a tax benefit of up to 2 lakhs for both self-occupied and let-out home. 

Added deduction under Section 80EE: 

  • The Section 80EE allows you to claim up to Rs. 50,000 below conditions:
  • Your total home loan amount should be less than Rs 35 lakh.
  • Your property’s value should not cross Rs 50 lakh.
  • And, you must be a first-time house owner, on the date your loan has been sanctioned.  

Additional deduction under Section 80EEA:

According to the Union Budget 2022 presented by Finance Minister Nirmala Sitharaman, from 1st April 2022, first time home buyers won't be able to claim income tax benefit on up to Rs 1.50 lakh home loan interest payment under Section 80EEA of the Income Tax Act. 

However, the first time home buyers whose property value is less than Rs 45 lakh and have got home loan sanction letter before 1st April 2022, can still claim income tax benefit under Section 80EEA. And before claiming the tax return you should keep the following points in mind:  

  • The stamp value of the property should be under 45 lakhs. 
  • Your loan sanctioned date should be before 1st April 2022.
  • On the date of loan sanction, you should be a first-time homebuyer. 

Point to note, if you want to enjoy tax benefits under the 80EEA section, you can't claim deduction under section 80EE.

Deduction for Joint Home Loan:

A great scope to save your tax if you avail a home loan jointly. Each co-borrower can claim up to 2 lakhs each on the interest and Rs1.5 lakhs each on the principal amount paid.

Calculate tax benefits on a Home Loan

One can use an online calculator to calculate the exact amount to be paid after all the eligible tax deductions. You can just simply enter all the required information and get the complete tabulation. The following are the details you will need in most cases:

  • Gross Annual Income Existing Deduction under 80C/D
  • Loan amount
  • Tenure
  • Interest rate
  • Loan start date

Well, a home loan is a big liability, but it also offers substantial tax breaks. One has to understand these carefully so that they can make the best of the situation.

(DISCLAIMER: These are general awareness tips. Before making your own financial planning, you are advised to consult your personal financial advisor.)

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