A home loan is a big responsibility, with several aspects that one needs to consider beforehand. All buyers are sure to pay attention to the home loan eligibility criteria and documentation and compare home loan interest rates offered by different lenders, but many overlook the fine print. One important aspect to consider is the Section 24b home loan tax benefit available to all borrowers under the IT Act. It has several nuances that one should be familiar with. Read on to know more about home loan incentives that can benefit prospective buyers.
- Deductions under Section 80c benefit can be reversed
The Section 80c deduction is a home loan tax benefit that allows you to claim up to Rs.1.5 lakh per year for principal repayment. This is a sizable amount, especially considering that you can claim it every year for the entire tenor. However, this deduction can be reversed if you sell the house within 5 years of taking the home loan. Once reversed, the amount gets added to your taxable income for the year in which you made the sale, and it will get taxed per the prevailing rates at the time.
2. Home loan processing fee can be claimed as a deductible
When you opt for a home loan, lenders usually levy a processing fee, which is the cost borne for sanctioning and processing your loan. In some cases, the processing fee can amount to quite a large sum as lenders usually charge a percentage of the loan amount. While some banks have an upper limit of Rs.25,000 or Rs.50,000, many others do not extend this benefit. Thankfully, per Section 2(28a) of the IT Act, this processing fee is considered an interest payment and you can claim a deduction for it.
3. Section 24b deductions can be claimed on private loans
Private loans are those offered to you by friends, family, or any wealthy individuals. These loans also allow you to enjoy deductions but only if you meet the usage terms. So long as you use the loan to purchase a house, construct a house in under 5 years, repair a property, or reconstruct a home, you can avail deductions under Section 24b.
In such an arrangement, the lending party must charge a reasonable interest, provide a legal certificate of interest and file the interest earnings when reporting income tax. It is also important to note that this benefit is only applicable for interest repayment, and you can’t claim deductions for principal repayment.
4. Home loan tax deductions can be claimed only by co-borrowers and co-owners
It is quite common for couples or family members to opt for a joint home loan. There are several benefits to doing so, among which are the tax deductions available to borrowers. However, it is crucial to note that only co-borrowers and co-owners are applicable for home loan tax deductions under the IT Act. If you’re simply listed as a co-borrower, you will not be able to claim these benefits even though you may pay your fair share of EMIs.
5. Joint home loan borrowers can claim individual tax benefits
All individuals in a joint home loan registered as a co-borrower and co-owner of the property can claim individual tax benefits. For families with both the husband and wife paying EMIs on a joint home loan, this could effectively double the tax savings. However, do note that the combined claim for both principal and interest repayment can’t exceed the actual amounts repaid in the given year.
All in all, being aware of home loan tax benefits is essential to ensure savings. Apart from tax benefits, another important practice to ensure savings while availing a home loan is to compare the various offers in the market. A great option to consider is the home loan offered by Bajaj Housing Finance Limited.
This home loan has several convenience-first features to ensure you borrow hassle-free. Moreover, their offerings include loans with the option of a flexible repayment tenor. You also benefit from a competitive home loan interest rate to help keep the outgo optimal. Some of the other notable features include a pan-India integrated branch network, online loan details access, and swift loan processing protocols. To avail these benefits today, apply online by simply sharing basic information.