It is a dream for every individual to own a house. Even the government of India works with the aim of ‘Home for all’ and encourages people to make investments for the same. This is where the home loan was introduced specially to help people achieve their dreams of owning a house of their desires.
This is also the reason why the home loan is eligible without any tax under section 80C.
There are additional home loan tax benefits that individuals enjoy when they apply for home loans. An example of such a scheme is ‘Pradhan Mantri Jan Dhan Yojana’ which aims to make housing affordable for all.
Home loan benefits for tax reduction:
The feature of a home loan which provides tax reduction helps in governing the cash flow better with additional advantages. An individual has the right to claim all the tax benefits which are applied on the home loan principal and interest amount.
Tax benefits for people buying their first homes (For the self occupants):
- A huge benefit of Tax reduction and advantages are provided on both the principal amount as well as the interest to the people buying a house for the first time.
- According to Section 80C, the maximum amount which can be deducted as part of the tax reduction is Rs. 1.5 lac. The senior citizens enjoy the benefits of tax reduction of as high as 2 lacs.
- These benefits are provided to needy people to encourage them to issue home loans and build their houses with the support of the government.
- If a new home buyer issues a home loan for a period of five years until the home is constructed, then the interest applied for he or she cannot be more than Rs. 2 lac at the end of the financial year. For senior citizens, the maximum amount is Rs 3 lacs.
- In the case where the construction is not completed within five years of time, then a maximum amount of Rs. 30,000 is deducted as a part of income tax.
Tax benefits to People buying homes for the first time (for renting or let out property purposes):
- Again similar tax deduction benefits are provided to such people on both the principal amount as well as the interest payment.
- According to Section 80C, individuals enjoy the benefits of claiming a maximum of Rs. 1.5 lac as an investment which is applicable for the tax deduction. This benefit is applicable only when the individual owning the property resides in a different city for business or other work purposes.
- For the last 2-3 years, tax benefits and reduction on interest have been constant at the lower of the two: Either a claim of a maximum amount of Rs. 2 lakhs or the actual interest amount paid for the properties which are owned by a taxpayer.
Tax reduction for people already owning property:
- People who already own a house, and are looking or constructing another do not certainly enjoy any tax benefits on the principal amount as tax reduction on principal amount comes with a motive to help those who cannot afford to build their houses on their own.
- But, these people do enjoy tax reduction on the interest. These go the same as for the ones who buy homes for the first time for renting purposes.
Tax advantages for individuals who have applied for home loans for houses under construction:
- Again, there is no such advantage on the principal amount, since the individual is clearly capable enough for building the house.
- Tax reduction and advantages are provided on the interest amount. The total interest can be claimed back in equally five financial years with a limit of Rs. 2 lakhs.