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Tax Benefits For Home Loan

Tax Benefits Available For Home Loans

The Income Tax Act, 1961 offers tax benefits to assessee that has applied for home loans. Generally, the housing loan is repaid to the lending institution in the form of EMIs, which are eligible for deductions under income tax act.

Deduction under Section 80C of the Income Tax Act -

The EMI portion which is paid towards repayment of principal amount of the home loan is deducted from income. The borrower will be allowed to get the tax deduction for a maximum amount of Rs 1 lakh each year, irrespective of the tax bracket. The Act requires the home loan should be taken towards a property which will be used for self-occupation. However if the assessee’s city of job is different from the city where he has bought a home, he will be still considered eligible for the deduction.

Deduction under Section 24(b) of the Income Tax Act -

The interest paid by the borrower towards home loan will be treated as an ‘expense’ under income from house property’ and is eligible for deductible under Section 24(b) from the total income of the assesse. The maximum deduction which will be allowed under this section is Rs1.5 lakh per annum.

If there is a partial disbursement of home loan-

If some part of the home loan is disbursed by the bank during construction stage of the property, the tax treatment will be slightly different. This portion of the interest which is paid prior to completion of construction of property cannot be claimed by the person as a deduction in the year in which it will be paid. When the construction is complete, the assesse can apply to get claim deduction for this interest under the Section 24(b) in five equal installments.

In case of co-applicants of home loans-

In this case both the co-applicants can claim tax deductions on their return, provided the home should be jointly owned by them. They will be able to avail tax benefits in the same proportion as the burden of EMI bearing by each of them.

If the borrower has taken more than one home loan-

If the borrower has taken two home loans for purchasing houses then he will be eligible to get tax benefits for both. In this case, the borrower will get tax benefits on home loans under Section 80C and Section 24(b).

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