Buying a New House? Here's How You Can Save Tax Using Home Loan

Home loan is a preferred option for many looking to buy a house. It comes in handy when you are short of funds and want to book a property. A home loan can also help you save taxes and bring down the tax liability on you. There are various provisions in the Income Tax Act, 1961, that offer tax deductions for those who avail of a home loan.

Tax deductions on home loans not only help homeowners but also increase the demand for houses giving a push to the economy.

Below are several ways you can save taxes using a home loan.

Tax Deduction on home loan Principal repayment

You can claim a tax deduction of up to Rs 1.5 lakh on the principal repayment of your home loan under Section 80C of the Income Tax Act. It must be noted that this deduction can be claimed only once in a financial year. To avail of this benefit, the construction property must be completed.

Section 80C also takes into consideration the stamp duty and registration charges while calculating the deductions.

Tax Deduction on Home loan interest

Under Section 24 of the IT Act, a taxpayer can reduce his tax liability by Rs 2 lakh by claiming deductions on home loan interest payments. The deduction is available if the construction of the property is completed within five years. In case the construction takes longer than five years then the deductions will come down to Rs 30,000. Also, the deductions remain to be Rs 30,000 if the home loan is obtained for the purpose of repair, renovation or re-construction of the property.

Tax Deduction for first-time buyers of property

Tax deductions of up to Rs 50,000 are available on the interest payable towards a home loan under Section 80EE of the IT Act. To claim this deduction, the taxpayer must be availed loan of not more than Rs 35 lakh and the value of the property should not exceed Rs 50 lakh. The person must also not own any other residential house property at the time the home loan is sanctioned.

Section 80EEA provides tax deductions of up to Rs 1.5 lakh on the interest paid towards the home loan. This deduction is available in addition to the one allowed under Section 24.

It must be noted that home loan tax deductions under Section 24(b), Section 80C, and Section 80EEA are not available in the new tax regime.

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