How to Save Money on Your Taxes with a Home Loan Interest Deduction?

                         

Opting for a home loan is the best way to go when one is purchasing a new house, especially for the first time. While the process of paying off a mortgage can be overwhelming, several tax benefits also come along. These benefits help to reduce the financial burden of homeownership and put the savings in a different investment. So, this article will discuss the benefits of home loan interest deduction and how it can encourage borrowers to save money.

Ways in which home loans can save taxes

The tax benefits available along with home loans are as follows:

1. Deductions on repayment of principal 

Homeowners can claim deductions on the principal amount of the home loan under Section 80C of the Income Tax Act. The maximum deduction available under this section is Rs.1.5 lakh. This deduction can be claimed against the principal repayment of the home loan taken for the purchase or construction of a residential property.

2. Deductions on payment of interest 

Owners can claim deductions on the interest paid on the home loan under Section 24(b) of the Income Tax Act. The maximum deduction available under this section is Rs.2 lakh for self-occupied properties. For let-out properties, the owner can claim the entire amount of interest paid on the home loan for construction, purchase, repair, or reconstruction as a tax deduction. 

3. Additional deductions for first-time homebuyers

Under Section 80EEA of the Income Tax Act, if borrowers apply for home finance for the first time, they can claim additional deductions. This deduction is available over those under Section 80C and Section 24(b). The maximum deduction available under this section is Rs.1.5 lakh for interest paid on home loans taken between April 1, 2019, and March 31, 2022, for the purchase of a residential property valued up to Rs.45 lakh.

Lastly, it is important to have all necessary documents, like home loan statements, interest certificates, and proof of principal repayment, and also to know about the new income tax slabs to claim these deductions. Mortgages are big financial commitments that continue for years. Therefore, one must take advantage of the home loan interest deduction to boost their wealth and savings effectively.