Availing for a home loan comes along with tax benefits. Home loan tax benefits can get you claims for interest deductions and principal amount deductions. Tax benefits on home loans are governed by different sections of the Income Tax Act. These tax benefits are claimed as tax deductions under different sections while filing the Income Tax Return. These tax deductions provide a way to remove some of the tax burden.
Tax Benefit on Home Loan Principal Amount
Section 80C of the Income Tax Act allows individuals and HUFs to claim tax deductions of up to Rs. 1,50,000 from their total income for investments and payments. Tax benefits of home loans under the section for repayment of principal amount part of the home loan, will be allowed only after the construction of the house is finished. And no deduction will be allowed during the years when the house is under construction. The house that was acquired should not be sold within 5 years of purchase or tax benefits which were claimed earlier will have to be reversed.
Tax Benefit on Home Loan Interest Amount
The tax benefit on home loans for payment of interest is allowed as a deduction under Section 24 of the Income Tax Act. Maximum claim of tax deductions of up Rs. 2,00,000 can be made. If the house was either not acquired or construction was not finished within 5 years from availing the loan, the interest benefits will reduce from Rs. 2,00,000 to Rs, 30,000.