Benefits You Need to Know About Home Loan Interest Component

Understanding the benefits related to home loan interest components is crucial for borrowers. This is because it can directly affect the total cost of borrowing and monthly repayment obligations. By properly knowing tax benefits, borrowers can accurately plan their finances, budget for loan repayments, and manage their cash flow effectively. 

Moreover, knowing the benefits of interest empowers borrowers to make informed financial decisions more confidently. So, if you are planning on applying for a home loan, you might want to know the benefits of the interest component that you can avail of: 

Understanding Tax Savings on Home Loans 

Acquiring a home loan not only assists the borrower in purchasing a home but also offers an opportunity to save on taxes as per the Income Tax Act 1961. The recent financial budget introduced additional benefits for home loan borrowers.

During the budget speech, Union Finance Minister Nirmala Sitharaman proposed an extension of the deadline for availing deductions on interest payments for home loans until 31 March 2024. This extension follows the previous budget's extension until 31 March 2022. The prolonged timeline, applicable to home loans sanctioned before 31 March 2022, aims to provide taxpayers with an extended period to benefit from such deductions.

Maximum Deductible Amount

Individuals who have taken a home loan will be eligible for particular tax incentives in fiscal year 2023-24. 

According to current laws, the maximum deductible amount for Section 24 is Rs. 2 lakh per year, while the maximum deductible amount for Section 80C is Rs. 1.5 lakh per year. Section 80EE also allows for a maximum deduction of Rs. 50,000.

Understanding these laws enables borrowers to analyse the possible tax savings they can obtain, making it easier to organise their finances and maximise attainable tax benefits.

Home Loan Tax Benefits Explained

• Section 80C - Principal Deductions:

Under Section 80C, the borrower can claim deductions on the principal amount of your home loan. Here are some crucial items to remember:

• The borrower can claim a deduction of up to Rs 1.5 lakh from the taxable income for principal repayment on both self-occupied and let-out properties.
• The deduction may include stamp duty and registration fees. However, it is only available once.
• To claim this deduction, the borrower must first complete the construction of the property.
• To be eligible for this deduction, the borrower must not sell their home within the first five years of ownership.
• If you sell your home within five years of taking possession, all deductions claimed will be reversed in the year of the sale, and the amount reversed will be added to your income for that year.

• Section 80EE Tax Benefits

Section 80EE also provides tax benefits on the interest component of your home loan:

• You can claim tax savings of up to Rs.1.5 lakh on your home loan interest.
• This advantage is in addition to the current exemption of ₹ 2 lakh under Section 24(b).
• However, the property must be worth less than Rs.45 lakh to claim this deduction.

Conclusion 

Understanding the benefits on the interest component can allow you to manage your repayments more effectively and even reduce your overall tax liability. However, consulting with a financial expert is also important as it will help you make the most of these benefits.