A Home Loan not only gives you a roof over your head but also helps you save on taxes. The interest on a Home Loan is tax deductible, meaning you can reduce the taxes you pay by paying the interest amount. This can result in considerable tax savings, especially if you’re in a high taxpayer bracket. Besides, the principal portion of your monthly payment goes towards paying down the principal balance of your loan, which can help build equity in your home.
How to take a Home Loan to help you save on taxes?
If you’re planning to buy a home in India, a Home Loan tax benefit may help you. This will help reduce your tax liability and also help you save on interest payments, which are non-taxable under Section 80C of the Income Tax Act. Here is how:
– Tax benefits can only be claimed if you take a loan to buy or construct your house
This means that if you take a loan to buy or construct a second home, the interest on it will be exempt from tax. However, this does not apply if you are taking loans for buying or building houses for parents or siblings.
You must understand that the benefit of claiming deductions under sections 80C and 80 EEA will not be available if your house is not self-occupied. Furthermore, the Home Loan tax benefit under Section 24B can only be claimed for one house property at a time.
– You must have taken the loan from a financial institution
You must take a Home Loan from a financial institution to qualify for the tax exemption. The loan can be used to buy or construct a house in India and must be used to purchase or build an Indian property that is self-occupied.Â
– Interest paid will reduce your taxable income
Interest paid on a Home Loan is fully tax-deductible under the Income Tax Act if the person claiming the deduction is an individual. Contrary to that, if you have a company and have taken a loan to purchase or acquire property, only your interest will be eligible for deduction from the taxable income. However, you cannot ask for a deduction for any other expenses connected with buying property (such as stamp duty) as these are not liable for any income tax in India.
If you doubt whether or not your house qualifies as residential accommodation (RWA), you can ask your accountant before claiming any expenses related to purchasing such property.Â
– You can also ask for a deduction on principal repayment under Section 80C of the Income Tax Act
If you are a Home Loan borrower, you can also claim a deduction on principal repayment per the Income Tax Act, Section 80C. This is an opportunity for Home Loan borrowers to take advantage of the Home Loan tax benefit and make their repayments more affordable.
The amount that can be deducted depends on how much money is deposited in your bank account through interest payments during the previous year. It also depends on your other income sources, such as rental income or profit from the sale of property (selling at market value).
– Claiming tax benefits can help reduce your tax liabilityÂ
 The tax benefits of taking a Home Loan can help reduce your tax liability. However, these benefits are not available for all Home Loans and may be subject to restrictions depending on the type of property purchased or constructed with the loan.
The maximum income that can be claimed as a deduction under section 80C is ₹ 2 lakh per annum (or ₹ 3 lakh if an individual). If you have taken a Mortgage Loan up to ₹ 6 lakh in total, you will receive an additional deduction under section 24(1)(a) of the Income Tax Act 1961 (ITA).
You can also claim a 100% deduction on interest paid during the financial year. To calculate this interest rate accurately, you can use a Home Loan EMI calculator. Thus, no other expenses related to interest payments would be allowed against your total income. For example, if there is an annualised interest rate of 15%, then only 5% is deducted from each installment amount due to banks/financial institutions; this leaves 95% as a benefit for claiming part payment towards rent/tenancy, etc.
Conclusion
Getting a Home Loan to save on taxes is a great idea. However, it’s essential to do your research. Use a Home Loan EMI calculator and understand the process before you take out a loan. If you’re strategic about it, a Home Loan can be a great way to save money on your taxes.
