Your guide to understanding income tax benefit on home loan

Just like property in India is a good investment, home loan India too are a great investment. With property rates soaring, it’s not really possible for the common man to purchase a property of his own without opting for home finance. But with so many taxes that already get deducted from your income can you really afford to pay your monthly EMIs?

Well, the Income Tax Act has made provisions for home loan borrowers, so that they can finally fulfill their dream of having a home of their own. There are three sections in the Act that give you tax benefits on home loan. You should know these because they are handy tax saving calculators. Here’s what they are.

1.  Section 80C: This section states that you can claim tax benefits of up to Rs 1.5 lakhs on repayment of the principal amount of your loan.

2.  Section 24: This section states that you can claim tax benefits of up to Rs 2 lakhs on repayment of interest on housing loan but this is only applicable for a self-occupied property. If you are renting out your property then there is no maximum limit on the tax benefit amount. So, you can claim the entire interest amount as a tax benefit. You can do this even if the amount exceeds Rs 2 lakhs.

3.  Section 80EE: This section states that if you are a first-time buyer then you can claim an extra Rs 50,000 as tax benefits on the interest repayment.

There are many tax benefits on home loan but, there are certain conditions that you need to fulfill to be able to claim them. The first and foremost condition is that you can only start claiming income tax benefit on home, once the construction of your new property is complete. These tax benefits do not apply to under construction properties, even if the borrower has already started paying EMIs. But there is an exception to this rule. You can get a benefit if the construction ends within five years of you taking the loan. Earlier this was only three years. This period has been revised because of the rising number of stalled constructions in recent times.

If you opt for a joint loan, to enjoy income tax benefit on home loan, the second party has to be a co-owner as well as a co-borrower. They can then claim tax benefits on their home loan interest rate separately. They can only do this when their individual share of the property is clearly defined. The ratio of tax benefit is the same as the ratio of the property share.

How the Union Budget has brought relief to Housing Loan Borrowers

The Union Budget for 2018 has been announced and it has brought some relief for those with home loans. This budget has brought with it a number of tax benefits on home loan. This has come as quite a relief for tax payers and has made it a little bit easier for people to become home owners. With financial year winding down, you’re probably wondering how to save income tax. You should also know whether, after paying your Income Tax for the year 2017-2018, it will still be a feasible option to buy that new flat you’ve had your eye the whole year.

Investing in property in India has always been a great way to ensure that you get heavy returns. But with the property rates always soaring, home loans are the only way one can afford property here. Now, the Income Tax Act already has some provisions and tax exemption on Home loans. Like the Section 80C where you can claim upto Rs. 1,00,000 as a deduction for repayment of home loan. But has this year’s Union Budget brought any more relief to home loan borrowers? Let’s find out.

As per this year Union Budget, those who have availed homeloans before April 2016, and are stuck in the older base rate regime, may get cheaper. The RBI has decided to "harmonise the methodology of determining benchmark rates by linking the Base Rate to the MCLR or Marginal Cost of Funds based Lending Rates with effect from April 1, 2018". 

The RBI, in a bid to reduce the burden of home loan interest rates on the borrowers, had introduced a Marginal Cost of Funds-based Lending Rate (MCLR) system with effect from April 1, 2016. This was done due to the limitations of the base rate regime. With the introduction of the MCLR system, it was expected that the existing base rate-linked credit exposures would move to the new system. This effort was taken after huge amounts of funds were deposited into banks during demonetization drive in India. 

Banks and NBFCs have cut their home loan interest rates by as much as 50 basis points. This makes a huge different in the amount of EMIs and the number of EMIs borrowers have to pay. This benefit will mainly affect those who have acquired a home loan after April 2016, but others can avail of its benefits too, by opting for a home loan balance transfer.

If you were waiting for the Union Budget to find out if it offers you any new housing loan tax benefits then you will not be disappointed.