While any individual who is buying a house by funding with the help of a home loan is entitled to claim tax benefits upon the repayment the particular home loan, any buyers buying a home for the first time can claim an additional benefit on the tax. Any individual can claim tax benefits on home loan both, for the principal amount that is repaid, as well as the interest which is paid.
This tax saving which can be claimed is one of the most essential aspects which is taken into account by the home buyers, while they are applying for a loan and deciding to buy a house. However, if we go by what is suggested by financial planners, any individual must not consider tax benefits as a primary reason for investing in a residential property. However, while we say that, we also agree that any savings are welcome. Herein, we provide some more information regarding the tax benefits that tag along with the repayment of the home loans.
Both on the interest paid as well as the principal repayment, the tax benefits can be claimed by individuals. Under the 1961 Income tax Act section 80-C tax deduction is applicable for principal repayment. However, under the same section, there are some other things or investments as well, which qualify for the same tax deduction, such as children’s education fee, investment in Public Provident Fund, and life insurance premiums and the overall limit of INR 1.5 lakh. Apart from the repayment of principal, you can claim an amount of up to INR 2 lakh of deduction for payment of interest on home loans, as per the section 24-B of the same Act.
Yet, if you are buying a home for the first time, an additional tax deduction can be claimed by the individual for an amount of up to INR 50 Thousand per financial year under the section 80-EE of the Income Tax Act. But at the same time, this deduction is subject to the fulfilment of certain stated conditions.
First proposed in the 2013-14 Union Budget, the section was first intended to stay in effect only for a period of two years (the 2013-14 and the 2014-15 financial years). However, the section was made a regular feature, beginning from the financial year 2016-17. In order to claim tax deduction under this section, there are certain listed criteria which need to be fulfilled by the individual. The amount of loan which is requested must not be exceeding INR thirty – five lakhs, while the complete value of the property must not be higher than INR fifty lakhs. In addition to this, the individual must not have any other residential property or house in his/ her name, i.e. must be a first time buyer of residential property or must have sold any previous property. Last but not the least, such a deduction can be claimed only by a taxpayer as an individual. This implies that under this section, any company, AOP (Association of Persons) or HUF (Hindi Undivided Family), as a group, cannot claim the benefits.
One thing that you must take note of, when claiming the deduction for repayment of principal amount of the home loan, regardless of the fact whether or not you are a first time buyer of a home, you should not sell the property within five years from the date of possession of the property.