There is more to a home loan than making it easier for the borrower to buy his or her dream home. These loans are eligible for several tax benefits that can help save a lot of money in the long run.
The interest paid on the home loan is considered an additional expense which the borrower can claim benefits against when filing the income tax returns each month. There are several provisions available that can help the borrower get rebates even on expenses that are borne before the property is completely constructed.
Tax Benefits on Home Loans
The EMI that is paid on an SBI Home Loan or any other loan consists of two portions. This includes the interest amount and the principal amount. The benefits mentioned as per the Income Tax Act are extended to both the components and other expenses that are borne by the borrower before acquiring the property completely in his or her name. The tax benefits offered are as follows:
#1. For First Home- Self Occupied
The tax benefits offered to first time home owners are as follows:
- On the Principal Amount: Any actual principal that is repaid can be claimed as an investment and is eligible for tax deductions as per Section 80C of the Income Tax Act. This is subject to a maximum repayment on principal amount of Rs.200000. The cap on the principal repaid is Rs.300000 for senior citizens.
- On the interest paid: The home loan interest paid is eligible for tax benefits if the house is constructed within 5 years from the sanction of the loan. The maximum interest eligible for these benefits is Rs.200000 and for senior citizens, the cap is Rs.300000. In case the house is not constructed within 5 years, a tax exemption of Rs.30000 is available. For loan amounts up to Rs.35 Lakhs and properties valued up to Rs.50 Lakhs, an additional exemption of Rs.50000 is provided.
#2. For First Rented or Vacant Home
These benefits are available if the home loan is applied for a rented home or if the property is vacant and deemed to be let out on rent.
- On the Principal Amount: As per section 80C of the Income Tax act, principal amount repayments up to Rs.150000 is eligible for deduction as investment. In case of senior citizens, the amount is extended to Rs.200000. To get this rebate, it is mandatory that the house owner resides in a different city.
- On interest paid: The tax exemption is provided for interest payments up to Rs.200000 or for all the interest that is paid on the properties owned by the tax payer, whichever amount is lower.
#3. For Second Home Owners
For a second home, or for an additional property, there are no tax benefits provided on the principal amount paid. However, interest is capped at Rs.200000 or the interest that the taxpayer incurs for all the properties, whichever amount is lower.
#4.Rebate on Interest Paid During Construction
For any property that the borrower is constructing or for any under-construction property that is not ready for possession, EMIs are applicable from the time the Andhra Bank Home Loan or any other home loan is applied for. This is irrespective of when the borrower gets complete possession of the property. However, the good news is that tax benefits are applicable on the interest paid even in the pre-construction period.
According to the Income Tax Act, the interest paid in this period can be claimed for deduction in the form of five equal installments from the time the borrower acquires the property or when the property is completely constructed. It is also possible to claim form the property income of the house. The maximum cap on the interest paid in the pre-construction period is Rs.200000.
#5.Rebate on Stamp Duty and Registration Fees
In addition to the principal repayment and the interest repayment, borrowers of SBI Home Loans can also get a deduction on the stamp duty and the registration fees paid towards the property. These rebates can be claimed under section 80C of the Income Tax Act but are subject to a cap of Rs.1.5 Lakhs. Any rebate on these fees can only be claimed in the financial year when the individual incurred these costs.
#6. Joint Home Loan Tax Deduction
In case of joint home loans, both the borrowers are eligible for tax rebates. This includes benefits of up to Rs.2 Lakhs on the interest that is paid in the individual tax returns and benefits of up to Rs.1.5 Lakhs on the principal amount that is paid in the individual tax returns. In order to get these tax benefits, it is mandatory for both the borrowers to also be co-owners of the property.
#7.Tax Benefits on Top Up Home Loans
Tax Benefits are also offered on top up loans. These are additional loans provided to customers with an existing Andhra Bank Home Loan or any other home loan. These loans are usually used for repairs ore reconstruction of the property that the original loan was borrowed for. It is possible to claim tax benefits on these loans if the individual has the receipts to prove that the amount was used for construction, repair or acquisition of a residential property.
The deduction available upon a top up loan is subject to a maximum amount of Rs.30000 for any self-occupied property. It is important to note that this benefit is available under the overall cap on the rebate available on the interest paid towards the original home loan which is Rs.200000.
Conditions for Home Loan Tax Benefits
To enjoy tax benefits extended to a home loan, it is important for the individual to fulfill two conditions:
- For a rebate on the principal amount, the property should not be sold within 5 years of possession.
- For a rebate on the interest, the purchase or construction of the house should be completed within 5 years from the financial year in which the loan was taken.