Buying a home is a big milestone for many Indians, and home loans help make this possible. One major benefit of a home loan is the tax savings it offers. Knowing these tax benefits and the Pre-EMI scheme can help homeowners manage their finances better. We will explain how to save on taxes with home loans and the Pre-EMI scheme.
Home loans offer multiple tax benefits under the Income Tax Act, 1961. These benefits are available on both the principal repayment and the interest paid on the loan. The sections under which these benefits can be claimed are Section 80C, Section 24(b), and Section 80 EEA.
Under Section 80C, a taxpayer can claim a deduction of up to ₹1.5 lakhs per financial year on the principal repayment of a home loan. This limit includes other investments and expenses eligible for deduction under Section 80C, such as PPF, ELSS, and life insurance premiums.
Eligibility: The deduction is available only after the construction of the property is complete.
Ownership: The property should not be sold within five years from the end of the financial year in which possession is obtained. If sold, the deduction claimed earlier will be added back to the income in the year of sale.
Stamp Duty and Registration Charges: These charges can also be claimed under Section 80C within the overall limit of ₹1.5 lakhs.
Section 24(b) allows a deduction on the interest paid on a home loan. This deduction is available under two categories: self-occupied property and rent property.
Deduction Limit: Up to ₹2 lakhs per financial year.
Conditions: The construction of the property should be completed within five years from the end of the financial year in which the loan was taken. If not, the deduction limit is reduced to ₹30,000.
Deduction Limit: There is no upper limit on the interest deduction for let-out properties. However, the total loss that can be set off against other income heads is capped at ₹2 lakhs per financial year. Any unabsorbed loss can be carried forward for eight years.
Pre-Construction Period Interest: Interest paid during the pre-construction period can be claimed as a deduction in five equal installments starting from the year in which the construction is completed.
Section 80 EEA provides an additional deduction of up to ₹1.5 lakhs on the interest paid on a home loan for first-time homebuyers. This is over and above the ₹2 lakhs limit under Section 24(b).
Loan Sanction Date: The loan must be sanctioned between 1st April 2019 and 31st March 2022.
Property Value: The stamp duty value of the property should not exceed ₹45 lakhs.
Ownership: The taxpayer should not own any residential property on the date of loan sanction.
The Pre-EMI scheme lets borrowers pay only the interest part of the EMI until the full loan amount is given. This is helpful for loans given in parts, like for properties that are still under construction.
For a home loan on an under-construction property, the lender gives the loan in stages as construction progresses. During this time, the borrower pays only interest on the amounts already given, called Pre-EMI. Full EMI payments, which include both interest and principal, begin only after the loan is fully disbursed.
Loan Amount: ₹50,00,000
Disbursed Amount (Phase 1): ₹10,00,000
Pre-EMI (8% interest): ₹10,00,000 * 8% / 12 = ₹6,667
| Advantages of Pre-EMI | Disadvantages of Pre-EMI |
|---|---|
| Lower Initial Outflow: Reduces financial burden during construction by paying only interest. | Higher Interest Outgo: Paying only interest initially may lead to higher overall interest. |
| Cash Flow Management: Helps manage cash flow better, especially if paying rent during construction. | No Principal Repayment: No principal repayment during Per-EMI period results in a longer loan tenure and higher interest burden. |
| Tax Benefits: Interest paid during pre-construction can be claimed in five equal installments after construction is complete. |
Interest paid during the pre-construction period can be claimed in five equal installments post-construction. This can further enhance tax savings over multiple years.
Knowing the tax benefits of home loans and the Pre-EMI scheme can help reduce costs for homebuyers. By using deductions under Section 80C, Section 24(b), and Section 80 EEA, you can save money and manage your finances better. The Pre-EMI scheme also makes it easier to handle money during the construction period. It’s important to stay informed about these benefits and talk to financial advisors to make the most of your home loan and tax savings.
How can EazyBankLoan help you in taking a loan? We understand the process of procuring a loan can be stressful. That is why we take care of your Loan application process, saving you time and hassle by handling the paperwork and communication with the loan providers.
Check the details here at EazyBankLoan
Need help? Reach out at support@eazybankloan.com
Yes, you can claim tax benefits on a home loan for an under-construction property. However, the benefits on principal repayment (Section 80C) and interest payment (Section 24(b)) are available only after the construction is complete.
The maximum tax deduction you can claim on a home loan is ₹1.5 lakhs under Section 80C for principal repayment, ₹2 lakhs under Section 24(b) for interest payment on self-occupied property, and an additional ₹1.5 lakhs under Section 80 EEA for first-time homebuyers.
Yes, if you live in a rented accommodation and own a home loan on another property, you can claim both HRA and home loan interest deductions simultaneously.
Pre-EMI is the interest paid on the disbursed amount of a home loan during the construction period Saving Taxes on Home Loan and Pre-EMI Scheme.
No List Founds!
Your email address will not be published. Required fields are marked *
