Home Loan Tax Deduction: Buying a house with the help of a home loan can not only free you from the hassles of renting but also help you in terms of tax savings.
Home Loan Tax Deduction: Buying a house with the help of a home loan can not only free you from the hassles of renting but also help you in terms of tax savings. You won’t have to pay tax on up to Rs 3.5 lakh in a financial year if you take a housing loan.
Under Income Tax rules, home loan principal payment up to Rs 1.5 lakh in a financial year is allowed for deduction under Section 80C. There is also an additional tax deduction of up to Rs 2 lakh under Section 24B against the interest paid on the home loan. Taken together, both of these tax benefits will reduce your annual taxable income by Rs 3.5 lakh.
The total home loan tax benefit of Rs 3.5 lakh will get reduced from your total taxable income and thereby reduce your tax liability as per your income tax slab.
Property purchase charges like stamp duty and registration also qualify for deduction under Section 80C.
It is important to note that under Section 80C, there are several other investments and payments that qualify for the deduction. The maximum deduction allowed under this section is Rs 1.5 lakh in a financial year. Tax filers, who don’t have any other investments eligible under 80C, can claim a full deduction of Rs 1.5 lakh in a financial year against the home loan principal payment.
“Buying a house increases the scope of tax benefits. You can claim the amount you pay towards the principal amount of your home loan as tax deductions. You can claim charges like stamp duty and registration as tax deductions as well. Both these exemptions are subject to the overall limit of Rs 1.5 lakh under section 80C. You can also claim the amount repaid towards the interest component of your loan up to Rs 2 lakh under section 24B,” Praneet Battina, Investment Research, Fi Money, told FE PF Desk.
Should you take a home loan to buy a house?
There are two common reasons for which people buy a house – self-occupation and investment. Experts say that the factors you consider and their importance in your decision-making will differ based on these reasons.
For example, if you are buying a house for investment purposes then you should review all other investment options that fit your risk profile and expectation of returns.
“Unlike other markets, the housing market is highly localised and depending on the specific market conditions, you could be better off investing in alternative low-risk instruments,” says Praneet.
The decision to buy a house for investment purposes also depends on the outlook of the particular housing market you are considering. If you firmly believe that this market is poised for solid growth, then buying that house could be a good investment decision.
However, if you are buying a house for self-occupation, then the question should not be of ‘if’ but ‘when’. You may plan your purchase better by investing to accumulate a larger amount for the down payment on your home loan. This will significantly reduce your loan burden, tenure and interest cost.
Experts suggest that regardless of the reasons for buying a house, you should first evaluate your financial position and stick to a certain budget. The cost of purchasing a house should not spread your finances so thin that you do not have enough money to save up for retirement or any other major life goals.
