The times have changed a lot where a person cannot pay the full cost of a home as the cost of properties have gone up so high. It used to be that if you can save money you can get a home but now it is not so. With the cost of rent also increasing with the owners looking at them as a source of retirement income many people are thinking it is better to buy a home through home loans and pay the EMI instead of paying rent which nowadays are almost equal.
With the added advantage of getting tax benefits for home loans, it has become a viable option for many people where they can have the advantage of having your own house, not paying rent and have the freedom of an owned house and also get tax benefits which this article will talk about.
Tax benefits of home loans
Tax benefits can be availed by a person under section 24 and 80c
Any loan EMI will consist of 2 parts one the interest portion and the second the principle portion. Section 24 is where a person can claim tax benefits for the interest paid. Till FY 2016-17, loss under the head house property could be set off against other heads of income without any limit. Since 2017 the interest paid on the loan has been capped at Rs.2,00,00 for self-occupied property. While for a rented or leased out property a person can claim the actual interest paid if it is lower than or equal to Rs.2,00,000.
A person can get tax exemption from the principle paid under section 80c. The maximum that can be claimed is Rs.1,50,000. Since the interest amount will be more during the initial phase of the loan repayment, you can claim other investments like LIC, PPF, Mediclaim etc.
First Time home buyers
Since 2017 first time home buyers get an additional benefit of Rs. 50,000 under section 80EE if they meet the following criteria
- This is the 1st house you have purchased· As on the date of sanction of loan no other house is owned by you
- Value of this house is Rs 50 lakhs or less
- Loan taken for this house is Rs 35 lakhs or less
Maximizing tax benefits on home loans
When you take the home loan alone al these benefits will can be availed but it will not completely cover your losses as the EMI that might be paid by you might be more than what is allowed. To maximize on the tax benefits, one can take a joint home loan with spouse, brother/s or parents. You can have up to 6 co-borrowers. These co-borrowers need to be co-owners also except in the case of spouses.
This is beneficial because all the co-borrowers can each claim the tax benefits under section 24 and section 80. Some banks give a lower interest rate for women co-borrowers with the condition that the women are also co-owner of the house. This will help in the long run reducing the amount of interest paid.