By Mr.
Adhil Shetty, BankBazaar.com
Used wisely, a home
loan can be an effective vehicle to bring down your tax outgo
As we approach the
end of the financial year (April to March), a lot of people start worrying about
their tax planning, looking frantically for ways to save taxes.
A lot of people plan
taxes over the year, but the number of people waking up in the last quarter is
also substantially high.
Housing loans have
played a very significant role in reducing the tax liabilities of a number of
taxpayers.
Tax-saving purpose..
 |
| Adhil Shetty, BankBazaar.com |
Here, let us look at
some of the finer points that everyone needs to know before taking a housing
loan for tax-saving purpose.
Tax benefits from
housing loans can be divided into two sub-sections.
One, the repayment of
the principal loan amount and, two, the repayment of the interest on the loan.
Tax benefits on home loans are governed by different sections of the income tax
act.
The amount paid
towards principal repayment is allowed for tax deduction under section 80c of
the income tax act while the amount paid as interest comes under Section 24 of
the Income Tax Act, 1961.
Income Tax benefit on
principal repayment
(Section 80C)
The total amount paid
towards repayment of the principal loan amount is allowed for tax deduction
under Section 80c.
The maximum deduction
allowed under the act is Rs. 1 lakh, which includes funds invested in PPF
accounts, tax-saving FDs, equity-linked savings scheme (ELSS) and other
financial instruments, along with repayment of the principal amount.
Tax benefit on
interest
repayment (Section
24)
The total amount paid
towards interest on the principal loan amount is allowed for tax deduction
under Section 24 of the I-T Act. The maximum limit for tax deduction under the
section is limited to Rs. 1, 50,000.
If the property is
self-occupied, the deduction is allowed for only one such property. Another
important point is that if the property is not constructed or acquired within 3
years of taking the home loan the interest benefit comes down to Rs. 30,000 per
month.
Let’s say the
principal repayment amount on a home loan is Rs. 1,10,000 and the interest
payable for the year is Rs. 1,60,000.
Hence, the total
deduction allowed as per Section 80C and Section 24 would be the total of
Rs.1,50,000 towards interest payable and Rs. 1,00,000 for principal repayment.
Taking a home loan to
save taxes:
Things to remember..
Loan is often
described by financial experts as a dreaded four-letter word everyone wants to
avoid.
There are prudent
ways to use loans, especially home loans, so that they can bring in some
benefits. While a lot of people take a home loan because they actually need it
to buy a house, a substantial number of people use housing loans as a
tax-saving tool even though they have the financial wherewithal to buy a house.
Irrespective of which side of the coin you look at, home loans offer a great
mechanism for tax savings. So, before you go out and take that housing loan,
there are certain things you must keep in mind.
These happen to be
things your advisor may not tell you.
Joint ownership with
spouse...
You can include your
spouse as a borrower for income tax benefits on housing loans. Both joint
applicants in a housing loan are eligible for income tax benefits as per their
share in the home loan. Both partners can claim benefits up to the maximum
limit.
Tax benefit on HRA...
A lot of people work
away from their homes and end up staying in a rented apartment.
If you have bought a
property with a home loan in one city, and you are staying in a rented
accommodation in another, you are entitled to both home loan and house rent
allowance (HRA) benefits when it comes to saving taxes.
About the author
The writer Mr. Adhil
Shetty is
CEO, BankBazaar.com
No comments:
Post a Comment