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What are the Tax Benefits on Home Loans?

26 Feb 2018

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Goel Ganga Blog - What are the Tax Benefits on Home Loans?Buying a home is a dream come true for many. But the finances involved in buying a home can sometimes overwhelm homebuyers, especially if it’s your first property purchase. It’s important to know that the tax benefits one gets by way of a home loan are significant provided you know how best you can leverage them. 


A thorough knowledge of Section 80C and Section 24 will help avail the tax benefits on home loans. Here are a couple of pointers that could help:


1. Tax benefits on home loans when the property is self-occupied

Assesse can show one property as self-occupied for tax purposes. In your IT returns, you can show income on house property as zero and show the entire interest up to Rs.200,000 per annum as a loss and adjust that against your taxable income. In the above example, you will pay Rs.360,000 as interest component on your home loan and against that you can get Rs.200,000 as exemption under Section 24 of the Income Tax Act. Considering that you are in the peak tax bracket, your rebate is over 30% on the interest paid. An interesting point to remember here is that the rebate under Section 24 is available on an accrual basis and not on an actual payment basis.


2. Tax benefits on home loans when property is rented out

The treatment is slightly different when the property in question is let out. In that case, there will be no limit for exemption under Section 24 and the limit of Rs.200,000 will not hold any longer. Of course, you will have to show the higher of the fair rental value or the actual rent received as income on the house property. But there is no limit on the amount of interest on loan that you can claim as an exemption.


3. Tax benefits on home loan availed as single or joint applicant

While taking a home loan you can either go for a home loan in your name or in the joint names of yourself and your spouse. If your spouse is an earning member then you can apply for loan in joint name which will entitle you for a higher loan amount. Additionally, this limit of Rs.200,000 can be claimed individually by you and your spouse when you file your tax returns making it doubly tax efficient.


Home loan terms and tax deduction policies change with changes in the real estate industry. Stay updated to make the most of your purchase.

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