It is crucial to be aware of the tax benefits on home loans when purchasing a house in India. One of the most significant benefits is accessible through Section 24 of the Income Tax Act, 1961, allowing you to claim a deduction on the interest paid on your home loan. This deduction can lead to a substantial reduction in your tax liability. The purpose of this blog post is to delve into the tax benefits of home loans available under Section 24 of the Tax Act.
What is Section 24 of the Income Tax Act?
Under Section 24 of the Income Tax Act, you can avail a deduction on the interest paid on your home loan for both self-occupied and let-out properties. For a self-occupied property, the maximum deduction available is Rs. 2 lakhs, whereas for a let-out property, you can claim the entire interest amount as a deduction.
What is the benefit of claiming a deduction under Section 24?
Availing a deduction under Section 24 of income tax can lead to a notable reduction in your tax liability. As the interest paid on a home loan can be considerable, claiming a deduction on it can result in substantial tax savings. For instance, if you fall in the highest tax bracket and pay Rs. 5 lakhs in interest on your home loan, you can save up to Rs. 1.5 lakhs in taxes.
What is the eligibility criteria for claiming a deduction under Section 24?
In order to avail the deduction under Section 24, you need to fulfill the following eligibility criteria:
The loan must be utilized for the acquisition or construction of a residential property.
The property must be either self-occupied or let-out.
The loan should be availed from either a financial institution or a housing finance company.
The property's construction should be completed within five years from the end of the financial year in which the loan was taken.
The interest paid on the loan should be pertaining to the financial year in which the property is acquired or constructed.
What is the maximum deduction available under Section 24?
Under Section 24, the maximum deduction available for a self-occupied property is Rs. 2 lakhs, and for a let-out property, the entire interest amount can be claimed as a deduction. It's essential to note that the deduction is applicable only on the interest paid on the loan and not on the principal amount.
What is the calculation method for claiming a deduction under Section 24?
The method of calculating the deduction under Section 24 is as follows:
If the property is self-occupied, the maximum deduction available is Rs. 2 lakhs.
If the property is let-out, the entire interest amount paid on the loan can be claimed as a deduction.
If the property is self-occupied for a part of the financial year and let-out for the remaining period, the deduction will be calculated proportionately.
Suppose you have taken a home loan of Rs. 50 lakh and paid Rs. 4 lakhs as interest in a financial year for a self-occupied property. In that case, you will be eligible for a deduction of a maximum of Rs. 2 lakhs only.
What are the other tax benefits available on home loans?
In addition to the deduction available under Section 24 of the Income Tax Act for the interest paid on home loans, there are other tax benefits available. These include:
The Income Tax Act's Section 80C allows for a maximum deduction of Rs. 1.5 lakh for the principal repayment of a home loan, applicable to both self-occupied and let-out properties.
A deduction can be claimed under Section 80C for the stamp duty and registration charges paid during property purchase, subject to a maximum limit of Rs. 1.5 lakh.
An additional deduction of up to Rs. 50,000 can be claimed by first-time homebuyers under Section 80EEA of the Income Tax Act. This deduction is available in addition to the deductions under Sections 24 and 80C.
An additional deduction of up to Rs. 50,000 can be claimed by first-time homebuyers under Section 80EEA of the Income Tax Act. This deduction is available in addition to the deductions under Sections 24 and 80C.
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