Tax efficiency 101: How to maximise income tax benefits on home loans
A rising interest rate environment highlights the importance of prepayment of home loans. (iStockphoto)
Home loans offer various tax benefits under the Income Tax Act of 1961. You can deduct up to ₹2 lakh on the interest paid on the loan each year, reducing your taxable income. Moreover, the repayment of the principal amount can also lower your taxable income by up to ₹1.5 lakh annually.
Tax deduction for first-time homebuyers
Under the old tax regime, first-time homebuyers opting for a home loan can benefit from tax deductions to reduce their tax burden. According to Pramod Kathuria, Founder and CEO of Easiloan, under Section 80EEA of the Income Tax Act 1961, they can claim an additional deduction of up to ₹1.5 lakh on the interest paid towards home loans. This deduction exceeds the existing deductions allowed under Section 24(b) and Section 80EE for home loan interest.
Additionally, Kunal Varma, CEO and Co-founder at Freo, stated that first-time home buyers could claim an extra deduction of ₹50,000 on interest paid under Section 80EE, provided the loan amount is less than ₹35 lakh, and the property value does not exceed ₹50 lakh.
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Home loan for women borrowers
Women borrowers usually get lower interest rates on home loans, which can greatly reduce the total borrowing cost. Furthermore, in some states, properties registered in a woman’s name may have lower stamp duty rates, leading to additional tax savings, Kunal Varma noted.
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How do we use these tax deductions to the fullest?
To maximise tax benefits, borrowers should ensure they maintain timely and accurate documentation of their payments, consider making prepayments on their loans to reduce the total interest outlay, and seek advice from tax professionals to plan their deductions across various financial instruments effectively.
Easiloan Founder and CEO Pramod Kathuria has suggested the following measures to maximise tax benefits:
1)Ensure that the residential property is registered in your name.
2)If you have a joint home loan, ensure you are listed as a co-owner of the house.
3)Calculate the total amount eligible for tax deduction.
4)Provide the interest certificate to your employer for TDS adjustment.
5)If you miss this step, file your income tax returns accordingly.
Home loan interest rates vary widely depending on the applicant’s credit profile and the lenders’ credit policies. Hence, one should always compare the housing loan interest rates offered by different lenders before opting for one.
Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.