If you are planning to purchase a house with a Home Loan, this would be the perfect time for you get the best offers from all the known banks or financial services. If you want to avail a Home Loan, normally banks offer 80% of the total value of the house as a loan, for e.g. if the house is worth INR 30 Lakhs than INR 24 Lakhs will be paid by the bank as the borrowed amount.
The Home Loans have two components, principal, and interest. The EMI scheduled consists of more of interest and less of the principal amount for the first initial few years of the loan. Hence, it is advisable to get the Home Loan scheduled for a lesser tenure period to save as much interest as possible. Slowly while the loan is getting over, the interest component will come down and principle will increase.
Income Tax benefits for Home Loan.
A person is eligible to claim tax benefits under Section 80c for the principal repayment of the Home Loan. An amount of INR 1.5 Lakhs can be claimed as a deduction along with additional instruments like LIC insurance premium, PPF, ELSS, NSC etc. Note that you are eligible for these benefits, only if you are living in the same house.
On the other hand under section 24 of the IT ACT, up to INR 2 Lakhs in a year can be claimed as a deduction on the interest paid for the self-occupied house, but in the case of it being an investment, the actual interest paid can be claimed as a deduction.
Conditions for claiming deduction under section 80c of the IT act:
- The principal repayment is a direct deduction from the total income for that assessment year of up to INR 1, 00,000.
- If the borrower is already invested in other instruments like PPF then the sum total of the tax deductions claimed should not exceed more than INR 1, 00,000.
- Principal repayment is considered for deduction only if the Home Loan is taken for the same house the borrower is living.
- If the borrower has taken a loan for the same house he is living in, then it is not eligible for HRA benefits.
- If the Home Loan I took for an investment purpose house than HRA benefits of housing loan is applicable for a tax deduction on the entire interest paid that year.
Joint Home Loan can be taken along with your spouse, parents or siblings, and a person cannot apply for the joint Home Loan with just anyone. It is mostly given to blood relations or spouse. A co-owner is a person who has a share in the property and a co-borrower is the persons who are also liable to pay the loan amount. Banks always insist that the co-borrower should also be a joint owner of the house. The Joint Home Loan with the spouse allows a tenure period up till 20 years and 10 years for the other co-borrowers, like family, parents etc.
Things to know about tax benefits:
- Home loan borrowers are entitled to tax benefits under section 80C and Section 24 of the Income Tax Act.
- The co-owners are entitled to tax benefits provided they are co-borrowers for the Home Loan.
- A co-owner, who is not the co-borrower of the loan, is not entitled to tax benefits. And additionally, a co-borrower who is not the co-owner also cannot claim these benefits.
- Housing finance organizations mostly prefer that all co-owners of the house be joint borrowers of the Home Loan. Loan providers specify who can be a joint borrower.
- The tax benefits are enjoyed by each joint owner in proportion to his share in the Home Loan.
- You are required to divide the components of tax paid on interest and principle for the EMIs in order to claim a tax deduction.
A home can be a huge financial investment. It is, therefore, important that you reduce the burden on your savings and other income sources by ensuring to claim a tax deduction in all the possible scenarios.