Now that you have decided to buy your dream house, availing a home loan should be the next thing on your to-do list. You will find it easy to pay off the debt in easy installments. And you will also be able to save a lot on taxes. You can claim up to an Rs.15 lakh deduction under Section 80C of the Income Tax Act. Moreover, for the interest component of the loan, you can claim a further Rs.2 lakh deduction. Yes, tax saving on a home loan is possible. Be assured, there is no other tax-saving instrument that can offer you a better deal.
Cash or Home Loan: What Should You Do?
Nowadays, many banks and non-banking financial institutions offer home loans. A home loan comes with many benefits. Thus, even if you have enough money to pay for a house, it is advisable to opt for one.
● When you pay the home loan equated monthly installments (EMIs) on time, you boost your credit score. A healthy credit score gives you easier access to future credits. For example, when you apply for another loan or another credit card, you will get them in no time.
● Paying for a property upfront blocks a huge chunk of your asset. Also, property investment is not known to generate good returns in the short term. Thus, you are denying yourself the right to earn more from your investment such as stocks and bonds.
● Home loan is one of the cheapest forms of credit available in the market. Make sure you make full use of it.
Unmatched Tax Saving on Home Loan
Buying a property is not easy. The taxes and duties associated with it will straightaway push up the prices by 15–20%. A home loan can be your only savior. The biggest benefit of availing a home loan is getting tax benefits. The tax saving on home loan would multiply if your spouse is also employed. Before getting into that, take a look at the tax components that will be applicable.
● Stamp duty: Whenever there is a transfer of rights of a property, the state government levies a tax called stamp duty. That is why it varies from state to state. Usually, the stamp duty is between 3% and 7%.
● Property registration charges: Property registration charges are fixed at 1%. For example, if your property costs Rs.20 lakh, you will need to pay Rs.20,000 towards registration charges.
● Goods and Services Tax (GST): GST is levied at 12% on properties which are under construction. If your property is categorized under ‘affordable housing’, then the GST rate will be lower at 8%. But if your property is ready to move in, and your builder has received a completion certificate, then the GST will be zero.
● Property tax: Property tax is payable to the government once a year. It also varies from state to state.
● Tax on rent: If you have rented out your property, you are liable to pay tax on your income from rent.
Tax Rebate on Home Loan
Interest on home loan: You can claim deductions of up to Rs.2 lakh on interest paid on home loans for a property which you have been occupying.
Principal repayment: You can claim deductions up to Rs.1.5 lakh for paying off the principal amount of the home loan under the guidelines for income tax, India.
Stamp duty/registration charges: You can qualify for a deduction up to Rs.1.5 lakh under Section 80C of the Income Tax Act. You can use this to pay off stamp duty and registration charges.
First-time home buyer: If you are buying a property for the first time, you can claim deductions of up to Rs.50,000 under Section 80EE of the Income Tax Act. But the loan amount should not exceed Rs.35 lakh and the value of the property should be limited to Rs.50 lakh.
Buying a property is an expensive proposition. There are several taxes and duties associated with it which only pushes up the actual prices. To manage this, a housing loan is without a doubt, your best bet. But you should compare the home loan interest rate on different loan products available to you.
Published by Mohsin Ahsan