Tax Benefits in Owning a Home
Buying a house is a major decision. While buying a house often feels more expensive than renting, this house will be more than just a place to stay; it will be an asset. To encourage people to build assets like this, the government offers home owners a number of tax benefits. These benefits differ according to the type of property being bought, loan amount, etc.
Tax Benefits on Home Loans
Most people need to take a loan to buy a house. You may also take a home loan to renovate your home. Tax savings on a home loan fall under three sections of Income Tax calculations: 80C, 80 EE and 24B.
• Section 80C
A home loan has two components: principal and interest. Under this section, a home buyer can claim a tax benefit of up to INR 150,000 on the principal amount repaid. The loan may be taken for a new construction or for a renovation/ extension project on an existing house. This deduction is applicable after construction has been completed and the individual has received a completion certificate.
• Section 80 EE
First-time homebuyers can claim a tax rebate under Section 80EE. This offers an additional rebate of Rs 50,000 over and above the benefits claimed under Section 80C and 24B. To claim this deduction, the loan should have been sanctioned after April 1st, 2016. Also, the value of the property being bought must be less than Rs 50 lakh and the loan should have been taken for no more than Rs 35 lakh.
• Section 24B
Apart from a tax rebate on the principal of a home loan, tax benefits can also be availed on the interest repaid. For a self-occupied house, this rebate is capped at Rs 2 lakh. If the construction is not completed within 5 years, the interest benefit is reduced to Rs 30,000. If the loan is taken for a property that is not self-occupied, there is no limit on the rebate that can be claimed on the loan interest. This is applicable on loans taken to buy a new house as well as loans taken for repair or renovation of residential properties.
HRA and Home Loans
While your house is being constructed, you will probably have to stay in a rental property. In such circumstances, you can claim the above tax benefits as well as house rent allowance. You can claim these tax benefits even after your house has been constructed if you choose to stay in rented accommodation and rent out your own home to someone else. However, it is important to note that the rent you receive will be taxable.
Tax Benefits on Joint Home Loans
As a couple, it is always advisable to buy a house as a joint investment. Doing this allows both the husband and the wife to claim deductions on their income tax returns. Both individuals can claim a deduction of up to Rs 150,000 on the principal amount of a loan under Section 80C.