With RBIs recent repo rate cuts and lenders following suit and slashing MCLR rates, now’s a great time for you to secure an economical home loan. Lower MCLR rates translate to smaller EMIs and mean that you now need less financial muscle to make your housing dreams come true. However, the good news doesn’t stop there.
The Income Tax Act specifies home loan tax benefits pertaining to both the principal and interest component of your loan. These help you save on taxes annually and allow you to finance your home even more affordably. As you apply for a home loan, here are 5 important tax benefits that you need to be aware of.
Income tax laws specify principal deductions of up to Rs.1.5 lakh and interest deductions up to Rs.2 lakh under Sections 80C and 24B respectively. To claim the 80C tax rebate, you need to retain the property you purchase for at least the first 5 after acquiring it. If you sell your house within 5 years of becoming its owner, then your deduction will be reversed. Similarly, in order to claim Section 24’s tax reliefs, you should complete constructing your house within 5 years from the end of the financial year in which you obtained the loan.
While Section 80C has a cap of Rs.1.5 lakh for both self-occupied and let-out properties, Section 24 has a cap only for self-occupied ones. For a rented property you can claim the amount you have spent as interest. Similarly, while Section 80C does not give you a rebate for a secondary home, Section 24 allows you to get a deduction. However, the maximum home loan tax exemption you can claim through all properties under this Section still remains capped at Rs.2 lakh.
When you buy a property, some of the one-time costs that you will incur are stamp duty charges and registration fees. While these are usually a small percentage, they can amount to a large sum. For example, if you buy a property worth Rs.50 lakh and the stamp duty and registration charges are set at 1% and 2% each, then you will need to set aside Rs.1.5 lakh to cover these fees. The good news is that you can get a deduction of up to Rs.1.5 lakh under Section 80C by claiming these charges in the year in which you incur them.
At times, you may prefer to buy a property that is currently under construction. This is because you may secure a budget-friendly deal from a builder who is in need of funds to complete the property. Since you will be paying EMIs before the property has been fully constructed, you may be wondering what tax benefits you can claim. Here, tax rebates on a home loan are limited to the interest component of the loan. You can get this rebate as deductions made in 5 equal instalments made in 5 financial years starting from the year in which you acquire the property or the year in which the construction gets completed.
As per current IT laws, each member of a joint loan can claim the full range of Section 80C’s and Section 24B’s tax benefits individually. The condition to claim these rebates is that the co-applicants also be co-owners of the property. For example, consider that you take a loan with your son as co-applicant and buy an apartment in your name. You envisioned that in the future, your son will pay off the loan. However, in order for your son to enjoy home loan tax benefits, he should also be made a co-owner of the apartment. If not, he will have to clear the loan sans tax rebates.
To make it easier for senior citizens and first-time buyers to meet their housing dreams the IT Act allows for special tax rebates. For instance, the caps on Section 80C’s and 24B’s deductions are raised to Rs.2 lakh and Rs.3 lakh for senior citizens. Similarly, Section 80EE allows for additional deductions to the tune of Rs.50,000 for first-time buyers. The conditions for this are that the loan should have been sanctioned between 1st April 2016 to 31st March 2017, the loan amount must not exceed Rs.35 lakh, and the property should not be worth more than Rs.50 lakh.
Financing your loan in a cost-effective manner starts with choosing the right housing finance solution. Currently, one of the most economical Home Loans in India is the Bajaj Finserv Home Loan. Here you can get some of the lowest housing loan interest rates in the country and some of the best repayment terms. You can choose to split up your EMIs over tenor spanning up to 240 months and can make prepayments and even foreclose your loan at zero additional charges. Further, you can also get a top-up loan without extra documentation in case you need additional financing, and can use the property dossier facility to move into the right home.